1k95g BSWorkbook1.Unlocked

\ CIPFA EDUCATION AND TRAINING CENTRE
Business Strategy
Business strategy
Workbook 1
(Copyright)
June 2014
Business Strategy
First published 2011

Published by CIPFA Education and Training Centre
215-221 Borough High Street
London SE1 1JA
Email: cetc@cipfa.org
Website: http://www.cipfa.org/cetc
Copyright 2011 Chartered Institute of Public Finance and Accountancy
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Every possible care has been taken in the preparation of this publication but
no responsibility can be accepted for loss occasioned to any person acting or
refraining from action as a result of any material contained herein.
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Contents
Learning objectives .......................................................................... 4
1.1 Organisational strategy .............................................................. 5
1.1.1 Definition of organisational strategy ........................................ 5
1.1.2 Corporate strategy ............................................................... 7
1.1.3 Business/service strategy ...................................................... 8
1.1.4 Operational strategy ............................................................. 8
1.2 Influences on strategy ............................................................... 9
1.2.1 Stakeholder value ................................................................ 9
1.2.2 The nature of value ............................................................ 12
1.2.3 Sustainable competitive advantage versus sustainable community
benefit................................................................................ 21
1.2.4
1.2.5
1.2.6
1.2.7
1.2.8
1.2.9
Vision and mission .............................................................. 24

Core values ....................................................................... 28
Culture ............................................................................. 29
Laws and regulations .......................................................... 37
Ethics and corporate social responsibility ............................... 41
Limited resources ............................................................... 45
1.3 Approaches to strategy ............................................................ 47

1.3.1 Environmentally-driven strategy ........................................... 47
1.3.2 Systems based approach ..................................................... 48
1.3.3 Resource based approach .................................................... 52
1.3.4 Rational strategy ................................................................ 55
1.3.5 Emergent strategy .............................................................. 58
1.3.6 Incremental strategy .......................................................... 61
1.3.7 Freewheeling opportunism ................................................... 63
1.3.8 Creative strategy................................................................ 64
1.3.9 Learning organisations ........................................................ 69
Summary ........................................................................................ 73
Additional exercises ....................................................................... 74
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Learning objectives
1) Define organisational strategy and discuss the different levels of
strategy
2) Identify key stakeholders and demonstrate how such stakeholders
influence strategy
3) Analyse value and demonstrate the impact of business,
stakeholders and public value on strategic choice
4) Compare sustainable competitive advantage and sustainable
community benefit
5) Explain vision and mission, demonstrating their applicability with
examples
6) Define core values and demonstrate how they may influence
organisational strategy
7) Analyse culture into different types and apply the cultural web
8) Discuss how laws and regulations in the public sector influence
organisational strategy
9) Discuss the impact of ethics and corporate social responsibility
(CSR) on strategic choice and analyse the CSR approaches
10) Discuss the impact of limited resources on organisational
strategy
11) Define resources and competences
12) Evaluate alternative approaches to developing organisational
strategy including environmentally driven strategy, the systemsbased approach, the resource-based approach, rational strategy,
emergent strategy, incremental strategy, freewheeling
opportunism, creative strategy and learning organisations.
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1.1 Organisational strategy

1.1.1 Definition of organisational strategy
A useful starting point for this course is to consider what organisational
strategy actually means. Strategy is ...the direction and scope of an
organisation over the long term, which achieves advantage in a
changing environment through its configuration of resources and
competences with the aim of fulfilling stakeholder obligations.1 It
should be noted, though, that there is currently no consensus in the
corporate strategy literature on definitions or even the terminology
adopted regarding strategy. Therefore, it is important that you
understand the concept of strategy rather than just memorising a
definition.
The concept of strategy explored in this workbook applies to both public
sector and private sector organisations. However, some theories were
originally devised for application in the private sector and there may be
some tension when applying such theories to the public sector. This is
an issue you should keep in mind when working through the rest of this
module.
The earlier definition of strategy suggests there are the following key
issues:
The long term direction: Organisations usually put strategies in

place to plan over a number of years with long term often taken to
mean five years or more.
Scope of an organisations activities: Private sector organisations will

often have to decide which and how many activities they should
focus on. In the public sector there is often less choice, with
organisations often required by legislation to provide particular
services.
Advantage for the organisation over their competition: For public

service organisations this may be providing better value for money
services than other providers or attracting greater funding from
central government.
Johnson, G. Whittington, R. and Scholes, K. (2007: 3) Exploring Strategy

Text and Cases, Eighth Edition. Harlow, England: Pearson Education Limited
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Strategic fit with the business environment: An organisations

strategy should be continually aligned with the changing
environment within which they are operating.
Organisations resources and competences: Whether the

organisation has the funding, skills and experience to implement
their strategy.
The values and expectations of stakeholders: The views of powerful

or influential stakeholders can impact on the successful acceptance
and implementation of an organisations strategy.
We will pick up on these issues in more detail, throughout the module.

Organisational strategy is a term that embraces the three levels of
strategy that may exist within an organisation; namely, corporate,
business or service and operational. These three strategy levels are
covered in sections 1.1.2, 1.1.3 and 1.14 respectively.
Rational model
Organisational strategy is often characterised in terms of the rational
analysis-choice-implementation model which may also be referred to
as strategic position, strategic choice and strategy into action2.
1) Analysis involves the impact on strategy of the following factors:
external environment
an organisations strategic capabilities, resources and competences
strategic purpose, such as their vision and mission
culture of an individual industry or country, such as the public sector

culture in the UK.
2) Choice involves the alternative strategic options including both

strategic direction and methods. Strategic choices may incorporate
decisions about what products or services to offer and what
partnerships to develop with other organisations.
3) Implementation is concerned with how strategies are actually
formed and brought into action or implemented. Prior to
implementing the strategy, an organisation should consider whether
it is both acceptable and feasible. The organisation also needs to
consider whether they have the appropriate systems in place to
implement the planned strategy.
2
Johnson, G. Whittington, R. and Scholes, K. (2011) Exploring Strategy Text

and Cases, Ninth Edition. Harlow, England: Pearson Education Limited
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Elements of this rational model will be returned to throughout this

module and you should use this rational model as a basis to consider
each of the issues introduced. There will likely be terms you are not
familiar with above but you will cover these in more depth throughout
the module.
Exercise 1.1
Which of the following is not a level of strategy?
Corporate
Operational
Tactical
1.1.2 Corporate strategy

As mentioned in section 1.1.1, organisational strategy covers three
levels of strategy within an organisation, the highest level being
corporate strategy. Corporate strategy ...is concerned with the overall
scope of an organisation and how value is added to the constituent
businesses of the organisational whole.3 Taking an organisational
view, corporate strategy therefore incorporates issues such as the
geographical area covered by the organisation, diversity of the products
or services provided and how the total resources available are allocated
within the organisation.
Considering corporate strategy within the public sector, an NHS Acute
Trust will often serve the immediate community. However, since April
2009, patients have the right to choose which hospital they are referred
to by their General Practitioner. Some hospitals also specialise in
particular areas, such as The Royal Marsden NHS Foundation Trust
which specialises in cancer diagnosis, treatment and research. Such
specialisms result in the geographical location being outweighed by
focussed treatments. Similarly, the range of services provided by an
NHS Trust will depend on their specialism, such as being a Mental
Health Trust. However, each region will have an NHS provider offering
the full range of medical services. Each NHS Trust will divide their total
resources across each department or service, in the form of budgets.
Johnson, G. Whittington, R. and Scholes, K. (2011: page 7) Exploring

Strategy Text and Cases, Ninth Edition. Harlow, England: Pearson Education
Limited.
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Exercise 1.2
Consider your own organization and outline how corporate strategy may
be applied.
1.1.3 Business/service strategy
The middle level of organisational strategy is known as business or
service strategy which is ...about how the individual businesses should
compete in their particular markets.4 Johnson et al5 explain that in the
public sector, business-level strategy could include the way in which
individual hospitals or schools provide their services. The business or
service strategy could also be considered as part of the organisation,
such as the Maternity Department within a hospital. Such units within
an organisation may be referred to as Strategic Business Units (SBUs),
which supply ...goods or services for a distinct domain of activity.6 In
both the private and public sector, each division specialising in providing
a particular product or service could be identified as being a SBU.
Exercise 1.3
Consider your own organization and outline how business or service
strategy may be applied.
1.1.4 Operational strategy
The lowest of the three levels of organisational strategy is operational
strategy which is ...concerned with how the components of an
organisation deliver effectively the corporate- and business-level
strategies in terms of resources, processes and people.7 Although
operational strategy is how activities are undertaken at the lowest level
within the organisation, it is crucial to ensure that both business or
service and corporate strategies are implemented successfully.
An example in an NHS Acute Trust would be the introduction of online
appointment management. This front line change could be supportive
Johnson, G. Whittington, R. and Scholes, K. (2011) Exploring Strategy Text

and Cases, Ninth Edition. Harlow, England: Pearson Education Limited.
5
ibid
6
ibid
7
ibid
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of higher-strategic goals such as achieving efficiencies or providing

more a flexible service to patients.
Exercise 1.4
Consider your own organization and outline how operational strategy may
be applied.
Many of the strategy terms covered in this section, as well as the
theories that will be introduced throughout this module, were originally
developed in the private sector. Although it is possible to apply many
of the terms and theories to the public sector, there are sometimes
difficulties in the interpretation of terminology due to fundamental
differences between the private and public sectors. These issues will be
returned to throughout the module and the module will focus
specifically on applying the terms and theories to public sector
organisations.
1.2 Influences on strategy

In section 1.1, you explored what organisational strategy actually
means and considered the different levels of strategy that may exist
within an organisation. Actually establishing and achieving a strategy is
difficult in practice, particularly due to the various influences that
impact on an organisations strategy. You will consider some of these
influences in the following sections.
1.2.1 Stakeholder value
Understanding an organisation's stakeholders and their views is critical
for an organisation to understand its strategic position. However,
before looking in detail at stakeholder value, it is important to gain an
understanding of stakeholders in general.
Stakeholders may be defined as ...those individuals or groups that
depend on an organisation to fulfil their own goals and on whom, in
turn, the organisation depends.8 As with any business, public sector
organisations have many different stakeholders, all of whom may have
8

Limited.
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conflicting expectations. Indeed, public sector organisations tend to

have a larger number of influential stakeholders with conflicting
interests compared to organisations in the private sector. You will
explore how conflicting interests among stakeholders can be resolved in
Workbook 2 when you consider stakeholder mapping.
Although the precise stakeholders will depend on the individual
organisation, some example stakeholders for a NHS Foundation Trust
could include:
strategic health authority
primary care trusts/clinical commissioning groups
local authorities
general practitioners
service users (e.g. patients and visitors)
local and voluntary organisations
trust staff (administrators, consultants, nurses, porters etc)
local community
central government
lobbying groups
carers
universities
trust executive
ambulance trusts
Of course, some stakeholders have more influence than others such as

central government compared to carers.
Exercise 1.5
Examine your own organization and make a list of its stakeholders.
Stakeholder involvement has been growing in the public sector in recent
years and its relevance cannot be overestimated. Recent Governments
have made various attempts to engage the interest of the public in
public services. Public sector organisations may try to understand and
seek the views of their stakeholders in a number of ways, ranging from
one to one meetings, through to national surveys. Indeed,
organisations often utilise a number of techniques in an attempt to
involve stakeholders, as the government has shown at a national level.
These include the launch of e-petitions which have attracted much
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public attention. However, consultation may result in unplanned

outcomes. The following Public Finance article extracts provide
examples.
We, the undersigned
Number 10's online road-pricing e-petition was a huge hit. Not in terms
of the likely fate of that policy but because it encouraged nearly 2
million people to put their point of view. Not a bad thing in today's
apathetic political climate, argues Tony Travers.
'We will consult the public.' Such simple words. Such an attractive
idea. Who could oppose the notion of asking people what they want or
don't want? The present government has invested much time and
effort in consultation and opinion polling. Major events have been held
to gauge public reactions to the NHS. Councils are required to test
customer satisfaction. Citizens' panels have been created. Indeed,
critics have accused Tony Blair of 'government by focus group'.
Can there be too much public consultation? The off-the-record attacks
on poor Benjamin Wegg-Prosser, Number 10's head of strategic
communications, and the alleged brains behind the now infamous idea
of encouraging the public to sign petitions on the Number 10 website,
suggest many senior Labour figures were badly annoyed by the impact
of the recent publicity given to the petition about road pricing.
As you might remember, this stated: 'We the undersigned petition the
prime minister to scrap the planned vehicle tracking and road pricing
policy.' It was signed by a grand total of 1,808,518 people and gave
massive public exposure to the question of whether or not Britain
should start charging for road use. There can be little doubt that, as an
exercise in public participation, it was a huge success... And yet
politicians are desperate to know what the public thinks about a range
of issues. In part, this is for the cynical reason that governments and
councillors wish to be popular. It is from this reasoning that the
accusation has arisen that the Blair government operates 'government
by focus group'. But politicians also worry with good reason that
the public is increasingly mistrustful of them and that there is a need
to reconnect with the electorate.
Pollster Ipsos Mori's huge body of evidence suggests that councils that
communicate directly with the public achieve higher levels of
satisfaction than those that don't. And polls show that the proportion of
the electorate who believe their council keeps them well-informed
dropped from 51% to 43% between 2003 and 2006.
Public Finance 09/03/2007
When considering an organisations stakeholders, it is important to
remember that the stakeholders may be internal or external to the
organisation.
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PCS union members begin strike

Civil service workers have begun a 48-hour strike today in protest over
proposed cuts to their redundancy terms.
Organisers from the Public and Commercial Services union estimate
that as many as 270,000 public sector employees could be involved.
They claim that under new terms being proposed by the Cabinet Office,
staff will lose up to a third of their entitlements potentially worth tens
of thousands of pounds if they are made redundant.
The government says the changes would save 500m over the next
three years if implemented.
Loyal civil and public servants wont stand by and allow the
government to cut jobs on the cheap, said PCS general secretary Mark
Serwotka. He accused the government of tearing up contracts for lowpaid workers while doing nothing to curb bankers bonuses, and added:
[They] need to recognise that slashing entitlements and cutting jobs
will damage public services.
Among those going on strike today are parliament security workers,
who have not gone on strike for 25 years, Jobcentre Plus staff, tax
officials and civilians working for the Metropolitan Police.
PCS is organising around 20 rallies across the UK, including a march in
central London, in fear that the government is preparing the ground for
substantial job cuts after the general election.
An additional 1,000 PCS workers will also be striking today and
tomorrow in a separate dispute over pay freezes and job losses at
Hewlett Packard. Many of those walking out work on public contracts
for Whitehall departments, including the Ministry of Defence and the
Department for Work and Pensions.
1.2.2 The nature of value
In terms of what value means and how it is achieved depends on the
situation and stakeholders involved.
Business value basically refers to all forms of value that contribute to
the health and well-being of an organisation. This definition covers
more than just economic value but value concerning employees,
customers, suppliers and the community. One commonly used term in
the public sector is value-for-money, which considers the value
provided against the costs.
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The aim of private sector organisations is to produce something of value

to a customer. This value is produced by using the organisations
resources and capabilities (e.g. staff, buildings, equipment, knowledge
and skills). The customer then pays for the product which hopefully
generates an economic profit which in turn provides the organisation
with more resources to begin the process again. Clearly the product or
service provided by the organisation must meet the customers needs or
wants in order for the customer to trade and to add to business value in
this way. This same principal applies to the public sector, though it
works slightly differently.
Customers exist in the public sector as well as the private sector. The
main difference is that a customer in the public sector may not pay
directly for a service but indirectly via taxation. There are certainly
services that are paid for directly (e.g. paying for a game of squash in a
local authority leisure centre) but the majority are indirect e.g. defence,
policing, street lighting etc. An important consideration is that public
sector organisations dont have the same freedoms to target customers
in the same way that private sector organisations do. Basically, private
sector organisations choose who they want to target their products at.
For many public services the customers are anyone and everyone. For
example, social and political expectations mean that the NHS does not
limit its services to certain groups.
If you think of a local leisure centre and the reasons that different
customers value its services then you will likely have a range of
reasons. For example some groups (elderly, students) may value the
discounts that are offered. Others may value the range of classes that
are offered compared to private sector gyms. There could be many
reasons why a customer chooses the leisure centre and organisations
need to understand these motivations.
Value in the public sector can be the same as in the private sector i.e. a
service that a customer wants to purchase, such as that game of
squash mentioned earlier. However value in the public sector can also
be quite different and is often focused on concept called public value.
There is a lot of debate about what constitutes public value and it has
proved difficult for writers focussing on the distinct nature of the public
services to define. A report by The Work Foundation introduced it as
follows:
Public value argues that public services are distinctive because they are
characterised by claims of rights by citizens to services that have been
authorised and funded through some democratic process. Simply
expressed, public value is the analogue of the desire to maximise
shareholder value in the private sector. It is designed to get public
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managers thinking about what is most valuable in the service that they
run and to consider how effective management can make the service
the best that it can be9
It can thus be seen, as the quote states, as being analogous to the
attempts of businesses to maximise value added through effective
management, but within a distinctive public sector ethos. This could
mean that public bodies seek to add value in ways that markets may
not do by, for example:
Pursuing the public good consciously, as an end in itself, rather

than a means to any other end.
Addressing market failure.
Promoting ethical values, notably equality.
It could also be taken to mean that value is not only experienced

directly but indirectly by wider society. So, for example, education
clearly benefits the educated but it also has an indirect effect on the
overall health of a modern, democratic society.
In 2004 the BBC stated that10
The BBC creates public value in five main ways:
Democratic value: the BBC supports civic life and national debate by
providing trusted and impartial news and information that helps citizens
make sense of the world and encourages them to engage with it.
Cultural and creative value: the BBC enriches the UKs cultural life by
bringing talent and audiences together to break new ground, to
celebrate our cultural heritage, to broaden the national conversation.
Educational value: by offering audiences of every age a world of
formal and informal educational opportunity in every medium, the BBC
helps build a society strong in knowledge and skills.
Social and community value: by enabling the UKs many communities
to see what they hold in common and how they differ, the BBC seeks to
build social cohesion and tolerance through greater understanding.
This reflects the expectation that the BBC, being founded to serve the public good
and largely funded by the public, should primarily consider how it serves the public
and adds value to public life. This may involve considering the ways in which it can
Public Value: The Next Steps in Public Service Reform, The Work
Foundation, 2008
10
Ibid.
9
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do things differently to commercial broadcasters, which are subject to somewhat

different expectations.
The following couple of articles from Public Finance further consider the
role of public value in the real world of the public sector. Although they
are quite lengthy articles, they set out both the theory and practicalities
of public value in some detail.
Because theyre worth it

A major rethink is needed on the government's reform programme.
Central to that is the concept of 'public value' and new ways of
getting public sector workers on board.
There has been much speculation, and not a little mystery, about
whether a Brown premiership will mean a change of direction on public
service reform.
There is also a shift occurring in the more rarefied atmospheres of
academia and think-tanks. New Public Management theory in short,
the view that the public sector should become more like the private
sector has ruled the roost for many years and has influenced the
policies of governments on both sides of the Atlantic. But a new
generation of thinkers sees many problems with this approach. It
might seem strange to those who have not been involved in these
debates, particularly those who actually deliver frontline services, but
there is now a belated realisation that public services do not operate
like commercial markets and were never really meant to.
Of course, public services have to be efficient, offer value for money
and meet individual user choice where possible. But this is only half of
the equation public services are also about delivering fairly and in a
way that is subject to democratic accountability. Importantly, they
also often have to operate in an environment of restricted capacity,
where not every choice can be met. It is beginning to be understood
that what public services do is often a complex trade-off between cost,
equity, user need and capacity.
The rather fraught example of social housing illustrates this clearly. In
parts of the UK, there is a huge user need for varied forms of social
housing yet there are not enough houses. This means there has to be
rationing.
If we have a commitment to equity, we cannot simply ration on a first
come, first served basis (or on the basis of country of origin for that
matter). Instead, we must make an estimate of the needs of the
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potential tenant. Of course, there is a strong case for increasing

capacity by building hundreds of thousands of new council houses, but
that is not without cost. These costs have to be balanced against other
demands on the public purse and against other needs within the
housing sector itself, such as good and speedy maintenance of existing
stock.
This is a complex and dynamic equation with many variables and
possible outcomes. As any housing officer can tell you, this cannot be
resolved simply by making public sector managers think more like their
private sector counterparts.
The rather simplistic view perpetuated not just by ministers, but by
other parties too, is that making public services responsive to
individual user choice automatically improves overall quality. But it
isn't necessarily so. Meeting individual choice is important, but when it
is not set in context it ignores the wider issues of capacity, equity and
cost. The only mechanism likely to be able to deliver improvement
while taking account of the many subtleties, dilemmas and variables
present within the public service equation is good old-fashioned talking
and deciding as a group.
This is the core of a new theory, which argues that public services
deliver something different to the private sector 'public value'. Public
value is the benefit delivered to users not just as individuals at the
point of delivery but also as members of a community that benefit
from free health care, good education and available housing. It also
incorporates value for money and efficiency, because users benefit
from reasonable tax levels and judicious public spending.
The key to good public services under this theory is to find the balance
between these different elements and deliver it. The way that is done
is through both established forms of democracy, such as local councils,
and newer forms such as deliberative assemblies. These forums bring
people who deliver public services together with users to work through
the dilemmas and develop a shared solution.
The Work Foundation in the UK is currently the main torch carrier for
the theory, but other approaches are also likely to emerge all of
which mark a break with the orthodoxy of the past 30 years. None of
this means that we should stop trying to make public services respond
to individual needs. The hardest thing, which public value has little to
say about as yet, is how to do this while allowing the wider context to
be considered simultaneously.
It must be a record for a general secretary of the TUC to get this far in
an article without mentioning staff or unions, but now it is time to
touch on this vital area. The fatal flaw in New Public Management
theory and the government's current programme is that both
managers and staff are seen as little more than calculating machines
that can be programmed to change their ways either by edict from
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above or by the pressures exerted through quasi-markets. It fails to

see that public service staff are driven by more complex motivations
than this. A sense of doing whats right by their clients and by their
colleagues also plays a big role, as do good quality of work, fair pay,
decent conditions and some degree of autonomy and control of their
working lives.
And there is no escaping the fact that if staff do not believe that what
they are doing will help them and their service move towards these
goals, then any improvement will be very limited...
The macho, top-down reform of the NHS that has gripped government
is the clearest display of this. It is ending in tears because however
much a strategy appeals to the wonks in Number 10, if staff can't be
persuaded of its benefits, it is worthless. This is a principle that any
decent private sector chief executive knows well it is strange that the
gurus of private delivery of public services never picked it up.
Of course, for the great majority of users, the face of a public service is
its staff be they health workers, teachers or fire-fighters. And, as
recent research has shown, if staff are demoralised and disappointed
by the service they are able to offer, then users will receive that
message and draw the same conclusions. So any government that
drives through change without taking staff with them, and then
expects the votes to flood in from a grateful nation, will be sorely
disappointed.
This means that staff must be a key part of any new approach to
reform. The challenge is to find the mechanisms that both create a
link of trust between users, staff and management and allow dialogue,
agreement and public service responsiveness to both the community
and individuals to flourish. This is no small task but if achieved, even
in part, it would represent a genuine culture change for the better in
the public services.
Public Finance, 01/06/2007
The value of everything

Is 'public value' a useful tool for democratising public services or a
load of airy-fairy nonsense? Colin Talbot sets out the case for taking it
seriously.
There is a new phrase percolating slowly through the policy and public
management community in the UK: public value. It made its debut in
about 2001, when the Cabinet Office Strategy Unit latched on to
Harvard academic Mark Moore's ideas, set out in his 1996 book,
Creating Public Value. These concepts were adopted and adapted
through a series of workshops and seminars and eventually emerged
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as a Strategy Unit paper, published in 2002 and revised in 2004.

After this initial flurry of activity, things seemed to go quiet for a while
possibly because the Treasury appeared to be at best lukewarm
about the ideas. However, over the past couple of years, another
round of activity has begun. The BBC used 'public value' ideas in its
charter renewal submission and continues to develop the notion as a
device for evaluating new services.
The Work Foundation, under Will Hutton, has been running a
consortium of public organisations developing the ideas further,
including the BBC; Department for Culture, Media and Sport; Home
Office; Learning and Skills Development Agency; London Borough of
Lewisham; Metropolitan Police; NHS Modernisation Agency; Ofcom;
and the Royal Opera House.
The influential think-tank the Institute for Public Policy Research has
published a couple of reports using public value ideas. If it is not yet a
fashion, it is possibly the start of one. So what is it all about?
In some ways, Moore's ideas can be seen as an attempt to weld
together the old concerns for the 'public interest' embedded in
traditional public administration with the emphasis on efficiency and
responsive delivery in the so-called 'new public management'.
NPM thinking has dominated discussions about public sector reform for
more than two decades now, especially in the 'anglo' countries but also
in cultures as diverse as Japan and Jamaica. It is based on some fairly
narrow ideas from economics about 'rational choice' and 'principal
agent' problems. It assumes that ideas from private sector businesses
can be imported willy-nilly into the public sector, and so we get
internal markets, performance-related pay and all sorts of
contractualisation, among other things.
Public value, as conceived by Moore and others, seeks to inject ideas
about trust and legitimacy back into thinking about public services. As
my colleague at Manchester, Gerry Stoker, puts it, it is a new way of
reconciling the search for efficiency with the requirements of
democracy in the public sector.
Moore's particular focus is from the perspective of senior public officials
running services, and he uses the language of strategic management.
How, he asks, do you demonstrate that your service is delivering value
for the money the taxpayer puts into it? He argues that senior public
managers have to play an active role in shaping the mandate that their
agency is given. This runs counter to some of the old versions of
public administration, which see public servants as passive
implementers of elected politicians' will. Moore says that, as the
people most closely involved in running services, public managers have
an obligation, as well as an interest, in making sure they get the best
and clearest mandate from politicians.
This view is not uncontroversial. David Walker of the Guardian, for
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example, recently asked what would happen if a Conservative public

manager tried to thwart the will of elected Labour politicians the
classic 'Sir Humphrey' problem. Of course, there is a real danger here.
But to pretend that public managers don't try to influence policy is just
nave Yes, Minister was funny precisely because everyone knew that
senior civil servants did just that, but maintained the polite fiction that
they didn't.
Moore's suggestion that we get these discussions out into the open
seems perfectly sensible, so long as the ultimate decisions are still
taken by democratically elected politicians.
Public managers indeed all public service workers are a valuable
knowledge asset. They know how services run best. Does that mean
they should be given free rein to run services, as some current
fashionable ideas about 'devolving power to the front line' suggest?
No, of course not. But it does mean they should be listened to, and we
should think very carefully about where we try to draw the boundaries
between 'policy' and 'operations'.
Let's take a recent example. There was a small but significant shift in
this boundary in the legislation that merged Customs & Excise and the
Inland Revenue. For historic reasons, both Customs and the Revenue
had total operational independence and a great deal of control over
policy. This was done for the good and proper reason that it stopped
elected politicians manipulating detailed tax rules to suit their
constituencies and kept their hands out of the till. The new Revenue
& Customs has ceded some of this power over policy to the Treasury,
in effect to the chancellor. What it illustrates is that the boundary
between elected politicians and permanent officials is always shifting
and somewhat fuzzy, but also always needs to be carefully patrolled.
The second focus of public value is on the radical notion that what the
public values is what it values, not some elite-imposed notion of the
'public interest'. Ultimately, public services will create value only if the
public sees that it gets more from contributing taxes than from simply
buying what it wants in the market place. But what does 'create value'
mean?
As Moore points out, public services do two things: provide services
and (hopefully) deliver social outcomes. So when an NHS hospital
provides a hip operation, it also aims to deliver a healthy and pain-free
patient and ultimately maybe even an active citizen, contributing to
society and the economy. So all services have a double aspect
immediate delivery to individuals or communities and eventual
outcomes. They have to be seen to be creating value in both ways in
delivering services and in their outcomes.
Secondly, who are they creating value for? Here is where it starts to
get a little complicated, because, as they say up north, there's now so
queer as folk. People are fundamentally contradictory. They are both
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selfish and altruistic. In public service terms, this means people want
services that give them what they, or their family, need, but they also
usually want public services to operate in public-spirited, altruistic
ways helping the poor and needy regardless of their ability to pay.
We value public services for both things, and it makes it very
complicated satisfying such contradictory desires.
But I would add a third dimension to self-interest and public interest:
procedural interest. A 2002 book, Happiness and Economics,
illustrates this desire with various experimental and survey evidence.
Essentially, authors Bruno Frey and Alois Stutzer argue that humans
value 'fair play' even when they personally lose. And 'fair play', in a
public service context, includes not only fair processes in deciding who
gets what, but fair and inclusive processes for deciding public policy in
the first place i.e., democracy. With some fascinating data they
show that the Swiss cantons that most use referendums achieve higher
levels of happiness with public institutions than others.
So public value is a trade-off between self, public and procedural
interests. The weight given to each of these aspects varies
considerably. For example, we tend to value procedural fairness very
highly when it comes to things such as paying taxes, collecting benefits
and locking people up. We favour, usually, public-spirited action when
it comes to helping the very poor or the very sick or victims of manmade or natural disasters. We place a high value on personal interest
when it comes to things such as schools for our children.
None of these balances is, however, fixed and none can ignore the
other two completely. In many ways, the recent education debate can
be seen in these terms: self-interest (parental choice) versus public
interest (no two-tier education system) versus procedural interest (fair
selection processes).
Creating public value is a constant process of balancing and
rebalancing these trade-offs by finding out what the public actually
wants from services. Moreover, this three-way yardstick has to be
applied at all levels from what resources we dedicate to services,
through to the outputs and outcomes they produce.
This might seem to be a fiendishly complicated process, as indeed it is.
But when it doesn't work, it soon becomes apparent. If a public
service satisfies individuals but ignores public and procedural interests,
taxpayers and voters will soon think twice about supporting it. Those
in the government who claim that services can be completely
'customer-driven' would soon find that, if they were, the public would
stop wanting to pay for them. But the reverse is also true if a
service is oblivious to the needs of the individuals who use it, they will
soon let their dissatisfaction be known either verbally or often these
days through the courts.
To all those who think this is airy-fairy nonsense and what is needed is
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some hard-headed numbers rather than this subjective stuff, there is a

simple question: what happened to Arthur Andersen? One of the 'big
five' accounting firms, which lasted almost a century, disappeared
virtually overnight when its value in the eyes of the public and markets
disintegrated in the wake of the Enron scandal. Subjective? Certainly,
but most issues of value are. The Child Support Agency has never
recovered from its initial failures and probably never will, because
nobody really trusts it. That is why the notion of public value is so
valuable.
Earlier in this workbook (section 1.2.1) you explored the range of
stakeholders involved in public sector organisations. Stakeholder
value is concerned with the value added to each of the stakeholders
within an organisation. For example, for an NHS Trust stakeholder
value would be concerned with the value the Trust provides to the
patients and visitors.
The interests of stakeholders can be identified individually or collectively
via a range of methods, such as questionnaires or feedback
mechanisms and they are unlikely to be entirely aligned; the interests
of one stakeholder is unlikely to be identical to any other. How an
organisation responds to the interests of stakeholders is likely to be
dependent on the respective power of the stakeholders that is how
influential or important the stakeholder actually is. The interests of
powerful or dominant stakeholders are likely to be maximised, possibly
at the expense of the less powerful stakeholders. The interests and
power of an organisations stakeholders feed into many areas of
strategy, including the actual strategy pursued and the underlying
vision and mission of the organisation. This stakeholder mapping, and
its impact, will be further considered throughout the module and
specifically in Workbook 2.
Exercise 1.6
Briefly explain what public value means, giving examples to support your
answer.
1.2.3 Sustainable competitive advantage versus sustainable
community benefit
Before comparing sustainable competitive advantage and sustainable
community benefit, it would be useful to explain what is actually meant
by sustainability. The most commonly adopted definition of
sustainability is by the World Conference on Environment and
Development (WCED) in their Our Common Future report, also known
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as the Brundtland Report after its chair, the Norwegian Prime Minister
Gro Harlem Brundtland. Sustainable development is subsequently
defined as Development that meets the needs of the present without
compromising the ability of future generations to meet their own
needs. 11 Keep this sustainability definition in mind as we go on to
explore sustainable competitive advantage and sustainable community
benefit.
Sustainable competitive advantage refers to how an individual
organisation can be better (and continue being better) than other
organisations trying to achieve the same goal on an on-going basis. In
the private sector this competitive advantage can be intuitively
understood such as one company offering a better product than its
competitor. A high profile on-going competition example includes that
between Pepsi and Coca Cola in the fight for carbonated cola soft drinks
sales. Of course, individual customers have different views on which
company provides the better drink. This links back to section 1.2.2,
where value provided was explored.
Competition in the public sector is less obvious but does still exist. Most
notably public sector organisations are competing for resources. For
example, central government will allocate a certain amount of its overall
budget to the Department of Health and a certain amount to the
Department for Communities and Local Government. Such government
departments are, consequently, in competition to obtain resources from
central government. Similarly at a lower level, individual local
authorities will be competing against each other to obtain their share of
the resources.
Aside from resources, other competition is evident in the public sector,
such as through the publication of league tables and individual
organisations competing to be the best or higher up the league table.
Examples include school league tables which may be used by parents to
choose which schools to send their children. Competition in the NHS
has become increasingly important due to choice being brought in for
patients regarding which hospital they are referred to for treatment.
These hospitals are now in competition with each other for patients
choosing them.
Gaining good performance often provides public sector organisations
with additional strategic freedom. For example, Monitor, the
11
WCED (1987: 43) cited by Elliott, J. A. (2006: 7) An Introduction to

Sustainable Development, Third Edition, London: Routledge.
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Independent Regulator of NHS Foundation Trusts, assesses whether an

NHS Trust should be awarded Foundation Trust (FT) status based on
their past performance. In order to gain FT status, performance is
assessed based on the Trusts performance in the areas of governance,
finance and legal constitution. Once FT status is awarded, the FT is not
directed by Government so has greater freedom to decide, with its
governors and members, its own strategy and the way services are run.
The following article from Public Finance, discusses competition in the
NHS.
Competition within NHS benefits hospitals

NHS hospitals improve from competing with each other but not with
the private sector, a study says.
Research by the Centre for Economic Performance at the London
School of Economics found that patients being treated at NHS hospitals
where there was a great deal of choice in the public sector spent less
time in hospital both before and after surgery.
In contrast, NHS hospitals whose local competition came only from the
private sector did not perform as well, and patients were kept in for
longer. But the researchers found they also tended to treat older and
less well-off patients, suggesting that younger and more affluent
patients were going into the private sector.
Zack Cooper, one of the authors of the study, said Competition has
been hotly debated in the NHS over the past year. Our study highlights
the benefits that competition can provide but it also underscores the
need for a strong active regulator to guard against providers cherry
picking the easiest cases.
Hospitals need to be competing to offer excellent care and better
service. But we need to make sure that it is not more profitable for
them to avoid treating certain potentially more costly patients.
The studys findings are published as the prime minister hosted a
summit in Downing Street to continue his push for NHS reform.
The contentious Health and Social Care Bill [passed in March 2012]
proposes opening up the NHS to more competition from private and
voluntary sector providers.
The summit has been criticised for excluding major professional groups
that have expressed opposition to the health reforms, including the
British Medical Association, Royal College of GPs and Royal College of
Nursing.
Public Finance, 20 February 2012
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Despite these examples of competition in the public sector, it is perhaps

more intuitive to argue that public sector organisations aim to obtain
sustainable community benefit rather than competitive advantage.
Sustainable community benefit refers to how an organisation may have
a positive impact on its surrounding community and whether this is
likely to be an impact that is long-term and not just a short term fix.
This has been a subject of considerable policy debate in the climate of
on-going cuts in public spending. For example, cuts in public health or
primary care now may result in an increase in more expensive and
distressing acute interventions in future years. In this case there may
be a clash between the short-term and long-term public interest.
Public sector organisations by their very nature are in existence to serve
the community and ultimately to provide value and benefit to their
users. It is therefore inherent that public sector organisations should
try to provide and demonstrate sustainable community benefit.
Commercial organisations will often also have an impact on their
community and the focus in recent years has been in trying to make
this positive. For example, Sainsburys supermarkets link up with their
local schools, charities and sport clubs in an attempt to engage with
their local community, as well as running initiatives such as Active Kids.
Such programmes may be linked to a corporate social responsibility
policy, a subject we will return to later in this workbook.
We will also return to consider competitive advantage through specific
models later in the module.
Exercise 1.7
Which of the following definitions is appropriate for competitive
advantage?
a.
Winning at all costs.
b.
Getting a head start by any means at your disposal.
c.
Adding more value for customers than your rivals do.
1.2.4 Vision and mission
So, you have considered the strategy an organisation has in place and
how this may be of interest to various stakeholders. This section
explores how an organisation may document their strategy, focussing
specifically on their vision and mission statements.
Earlier in this workbook (section 1.1) you considered what strategy
actually is and section 1.1.1 highlighted that strategy text books are not
consistent with either the definitions or terminology adopted. As we
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now move on to consider vision and mission it should also be noted that
in varying texts you will come across differing definitions.
Although organisations often formalise their mission or vision in a
statement, this is not essential and some organisations will have a more
informal mission or vision which is not formally documented.
Mission
The mission of an organisation relates to its goals or overriding
purpose12. The mission statement ...aims to provide employees and
stakeholders with clarity about the overriding purpose of the
organisation.13 Senior managers within an organisation may get
together to devise the mission or they may consult with employees
throughout the organisation. They may even contract external
consultants to phrase their ideas in a catchy statement.
Missions can be beneficial to an organisation by setting out clearly what
the long term focus of the organisation actually is, making it clear to the
organisations employees and other stakeholders. Mission statements
tend to cover the following areas:
The organisations vision which is further discussed later in this

section.
The organisations main intentions and aspirations, which are often

referred to as their strategic intent. This clarifies the organisations
main goals.
A description of the main activities of the organisation, making it

clear what business they are in.
Key values held by the organisation to reflect the various

stakeholder groups and ethical agendas. These core values are
further considered in section 1.2.5.
The mission must be linked with the organisations strategy as well as

their annual business plans, which are covered later in this module.
You may be asking, though, what the purpose is of the mission
statement. There are a variety of uses, including:
12
Johnson, G. Whittington, R. and Scholes, K. (2011) Exploring Strategy

Text and Cases, Ninth Edition. Harlow, England: Pearson Education Limited.
13
Johnson, G. Whittington, R. and Scholes, K. (2011: 120) Exploring
Limited.
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To sell an organisation to its customers. In public sector

organisations this may involve governments in terms of generating
additional funding. Such mission statements may be set by senior
management and marketing with little reference to the rest of the
workforce.
To set a rallying point for staff in a complex and changing

environment. In this situation the statement is likely to be agreed
by some consensus throughout the organisation, such as through
consulting employees.
To drive change, especially where transformational change is

required, as it can clarify exactly where an organisation is going. In
this case, the mission statement is usually created by the person
responsible for the change, and used as a symbol of change.
To direct action, when set by a powerful external stakeholder, and

can then be used to hold the organisation to account.
However, devising an appropriate and helpful mission statement can be

difficult which is why they are often criticised. Producing a succinct
mission is particularly difficult for organisations that undertake a range
of services. For example, local authorities provide a large number of
significant services to their community including education, social
services, planning, highways and even refuse collection. Consolidating
this into a single mission statement that everyone understands and
agrees with can be problematic. Each of the stakeholder groups will
have differing views on the priority areas that the local authority
provides. In contrast, the mission for a private sector organisation may
be simpler such as to provide their product nationally or internationally,
in order to gain a profit though usually they are not stated quite so
bluntly.
So, despite the potential benefits there remains the question of how
helpful mission statements are when they are expressed in an imprecise
way. Indeed, you may have read other texts and articles which take
contrary views, and it should be noted that there is little agreement
between theorists on this point. It is probably useful to relate the
usefulness of a mission statement to the purpose given to it by the
management of an individual organisation. Where an organisation
defines the purpose of its mission statement, and then designs and
supports it in an appropriate way, the objective is often met. It is
interesting to note that most authors seem to support the concept of
mission statements while the criticisms that are expressed tend to come
from managers of organisations who apply them badly or cynically.
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All organisations will have a mission, or over-riding purpose, although

some may choose to publicise this more widely than others. For
example, CIPFA has an over-riding strategic purpose of:
'...working in the public interest to promote high standards and deliver
excellence in governance and financial management throughout the
public services.' 14
Exeter City Councils mission is ...to enhance Exeter as the regional
capital and to work with partners to improve the quality of life for all
people living in, working in and visiting the city.15
Having a mission statement which is clearly understood by all does,
undoubtedly, give an organisation focus. This should result in all
strategies and tactics being driven and prioritised through that focus.
Of course, the larger the number of stakeholders with contrasting views
the less direct and more cumbersome the mission statement may end
up being.
Vision
Similarly to mission, an organisations vision also relates to goals but
focuses more specifically on the ...desired future state of the
organisation.16 Indeed, the vision statement is concerned with this
desired future state or aspiration of what the organisation wants to
achieve. The vision must be linked to the organisations strategy and
purpose.
An example of a vision statement for a local authority is given below:
Manchester City Councils vision is for Manchester to be a world class
city by the year 2015.17
Again, it may be more difficult for a public sector organisation to set an
all-encompassing vision than for the private sector, where many firms
will be focussed primarily on maximising their profit. However, many
organisations are also taking ethical issues into consideration we will
consider this further in section 1.2.8.
14
CIPFA (2010) Draft Development Strategy to 2015 member consultation.

Exeter City Council (2010) Corporate Plan: planning for our future
2010/11 update.
16
Limited.
17
Manchester City Council (2007) Corporate Plan 2007-2010.
15
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As discussed with the mission and mission statements earlier, there are
both potential benefits and criticisms of an organisations vision. It
would be useful for an organisation to have a clear vision of where the
organisation is heading and what they want to achieve. In effect, this is
a mini strategy in a sentence, providing a guide for all on where the
organisations is heading. However, summarising all that an
organisation wants to achieve in the next few years in a single sentence
can be extremely difficult, especially for all stakeholders to understand
and accept.
As with mission statements, then, the potential benefits and criticisms
of vision statements depends on how specifically they are written and
the attention given to them by the organisation.
Exercise 1.8
Access the Internet and search for the websites of at least five major
public service organizations. When you have found relevant websites, try
to identify each organizations mission and vision. Compare these with
those of your own organization and reflect on the variations you find.
Ultimately devising an organisations mission and vision must come as a
result of considering the existing and future plans, consulting the
various stakeholders and, in effect, summarising the overarching
strategy of the organisation. Clearly, some organisations will achieve
this difficult task more successfully than others. Furthermore, there will
be a wide range of differences in the extent that organisations use their
mission and vision statements to guide their everyday work compared
with them simply being statements in a file on a dusty shelf.
1.2.5 Core values
In addition to having a strategy in place, with a mission and vision
statement, organisations have been increasingly developing a set of
core values that ...are the underlying principles that guide an
organisations strategy.18 In the public sector, emergency services
such as the ambulance or fire and rescue services have the underlying
principle to save lives to the extent that employees will break strike
action or risk their own lives to attend emergencies and save others.19
The core values in the private sector may not be quite as extreme as in
18

Text and Cases, Eighth Edition. Harlow, England: Pearson Education Limited.
19
ibid
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this emergency services example, but core values apply to both the
private and public sector.
Of course, the core values of any organisation need to be consistent
with their strategy and may also be linked to mission, vision and
stakeholder values. However, when considering an organisations core
value a distinction should be made between what their core values
actually are at the present time and the core values the organisation
would like to aspire to in the future.20
As an example from the public sector, the following are the core values
of the NHS21:
we will put the patients at the heart of everything we do
we will introduce innovation and change
we will emphasise professional competence
we will focus on delivery to the NHS
we will demonstrate value through being effective, efficient and

professional in our approach
It should be recognised that the core values in some organisations may

be clearly documented such as in the NHS example above. However,
other organisations may have innate core values which are fully
understood by all involved without being formally documented. Some
of these innate core values may be part of the organisations culture,
which is further explored in the next section (section 1.2.6).
Exercise 1.9
Consider your own organization and the mission or vision statement you
looked at in Exercise 1.8. What are the core values in your organization?
1.2.6 Culture
Culture is important in understanding an organisation, but it also
facilitates in appreciating the extent to which potential strategies will be
supported on implementation. For example, if you were to be looking
at a strategy of alliance between two organisations with very different
cultures, then there are likely to be problems in amalgamating
employees.
20
21
ibid
http://www.connectingforhealth.nhs.uk/resources/corevaluesposter.pdf
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As with strategy, there are many differing definitions of culture but a

generally accepted definition of organisational culture is provided by
Edgar Schein as being ...the basic assumptions and beliefs that are
shared by members of an organisation, that operate unconsciously and
define in a basic taken-for-granted fashion an organisations view of
itself and its environment.22 Put simply, culture is the ...taken for
granted ways we do things around here.23
Supplementing his definition of organisational culture, Edgar Schein also
proposes that there are different levels of culture within an
organisation:
Values which may be formally documented by the organisation

and therefore easy to identify. Look back at section 1.2.5 which
explored core values in more detail.
Beliefs which are more specific than values and can be seen in the
way that individuals talk about the issues the organisation faces.
For example, an organisation may believe they should not invest in
unethical companies. You will look at ethics further in section 1.2.8.
Behaviours how an organisation runs on a daily basis. Behaviours

may include staff going for a daily coffee break mid-morning.
Taken-for-granted assumptions these are the core elements of an

organisations culture and are also termed the organisational
paradigm. The paradigm is the set of assumptions held in common
and taken for granted in an organisation.24
These four levels of culture can be thought of as an onion with the

paradigm or taken-for-granted-assumptions as the core and the values
being the outer layer. It is important to remember that these elements
of culture discussed above are concerned with the organisational view
rather than those of individual employees.
22
Schien, E. (1992) cited by Johnson, G. Whittington, R. and Scholes, K.

(2011: page 168) Exploring Strategy Text and Cases, Ninth Edition. Harlow,
England: Pearson Education Limited.
23
Deal and Kennedy (1982) cited by Johnson, G. Whittington, R. and
Scholes, K. (2011: page 168) Exploring Strategy Text and Cases, Ninth
Edition. Harlow, England: Pearson Education Limited.
24
Limited.
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The informal elements of an organisation, such as culture, are hugely

significant but can be largely unnoticed in comparison to the formal
organisation. This distinction has been likened to an iceberg, with the
formal elements the tip of the iceberg which is seen above the water
with the informal element much more significant but largely unnoticed.
The formal elements, such as an organisations structure will be further
explained in Workbook 4.
There are a range of influences that can be termed the cultural frames
of reference. We will now consider what some of these influences could
be for public sector organisations.
National and regional cultures: the appropriateness of strategies

may differ with nations or regions. An example in the public sector
is the European Union which sets guidance and strategies for its
member states.
Organisational field: this could be very different organisations with

very different cultures working within the same area. For example,
NHS hospitals and drug companies. Though the organisations may
differ they have a definite influence on each other.
Organisational: these may be the stated values of an organisation,

such as the mission statement and core values of local authorities or
NHS Foundation Trusts that we looked at earlier in this workbook.
Functional/divisional: departments within a local authority may have

different sub-cultures. For example, there may be different subcultures within the Education and the Leisure departments.
There are two key tools that are useful to explore the culture both
within and across different organisations; namely the cultural web and
Handys cultural types. The following sections look at both of these
tools in turn. These tools can be applied to both the private and public
sectors.
Cultural web
The cultural web is a tool used to understand an organisations existing
culture and its effect, allowing a practical, organisation-based approach
to identifying aspects of culture. However, the cultural web tends to be
primarily descriptive rather than being an analytical or normative tool.
It is basically a means of showing ...the behavioural, physical and
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symbolic manifestations of a culture...25 and can be applied to

organisations in either the public or private sector.
The cultural web comprises six elements. These are often shown
graphically as surrounding and overlapping the paradigm in the centre.
Rituals and routines are particular activities that reinforce the

culture and how things are done in a particular place or
organisation. One example may be employees always going to the
pub on a Friday evening after work.
Stories told by members of the organisation such as to new

recruits, embedding the culture, highlighting heroes or villains,
successes or mistakes.
Symbols are objects or events that have some purpose. For

example, senior employees may have a desk with a window view
and their own car parking space.
Power which may be defined as ...the ability of individuals or

groups to persuade, induce or coerce others into following certain
courses of action.26
Organisational structures which are the roles, responsibilities and

reporting relationships within an organisation.
Control systems which may be formal or informal systems of

monitoring individuals within the organisation. This control segment
of the cultural web is particularly relevant to public services,
because it is often the way that control is exerted that drives focus
and achievement. The best example of this is the over-riding
importance of achieving targets within public services, and the
resulting impact on behaviour. For example, the National Indicator
set of performance indicators in local government.
Remember that we have defined the central paradigm as being the set
of assumptions held in common and taken for granted in an
organisation.27 We could see the paradigm as shaping many of the
25

Limited.
26
27
Limited.
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behaviours etc. identified in the cultural web. For example the

underlying assumptions of staff will be a lens through which they pick
stories to tell and the way in which they tell them. Another way of
looking at this is that the underlying paradigm cannot be observed
directly but it could possibly be inferred by examining more public,
observable indicators of culture such as stories, routines etc.
Below is a summary of the cultural web applied to the UK Forestry
Commission, providing an example of how this tool can be applied to a
public sector organisation and the types of observable features of
culture that might be picked up in a cultural web analysis
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Cultural web element
Examples in the UK Forestry

Commission28
Stories
The good old days

Highlighting the Forestry
Commission superiority
Rituals and routines
Working long hours

Focus on processes rather than
outcomes
Symbols
The two tree logo

Dress code or uniform
Power
Based on rank/status in hierarchy

Professional groups
Organisational structure
Formal management boards and

committees
Grades and pay bands
Controls
Legislation and statutes

Operation manuals
Exercise 1.10
In this exercise you will apply the theory to your workplace by completing
a cultural web for your organization. Be as objective as you can: try to
look at your organization as if from the outside, recognising stories and
rituals for what they are. In completing your cultural web you may find it
helpful to think through the following questions:
Stories
Who are your heroes and villains?
What do your customers/partners think of you?
28

Text and Cases, Eighth Edition. Harlow, England: Pearson Education Limited.
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Was the past better or worse than the present?
What behaviour leads to individual success?
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Symbols
Is there a uniform (even if informal such as shirt and tie)?
Is certain jargon used which outsiders would struggle to

understand?
Do lease cars, office size, chair size, parking space, mobile phone
denote anything?
Rituals and Routines
Are there any regular routines for meetings, employees leaving,

induction or Christmas?
What happens when there is a success or failure?
Power
Where does power really reside?
Is there a strict meritocracy? If not, how are you promoted?
Controls
What performance measures are used? To what extent?
Are there procedures and guidelines? If so, how many?
Is your interface with the outside controlled? If so, how?
Organizational structures
What is your organizational structure?
Are decisions made analytically or heuristically?
Are some parts of your organization seen as better than others?
Paradigm
Perhaps most challengingly, what do you think the underlying paradigm
is? What do all the clues above tell you about the way people in your
organization think and feel about your organization?
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Cultural types
Handy defines four main cultures based on how power is exerted29:
Power culture: a central figure exercises control from the centre

and appears to influence all actions and decisions; this approach is
typical of small, entrepreneurial organisations. It relies on trust and
personal communication. It is fast to respond to change, and can
be rewarding to work for, but tends to break down as the
organisation grows. An example of a power culture would be a small
business.
Role culture: a culture based on specialisation, logic and

structures, in which people have power because of their position;
this is typical of most bureaucracies. These are stable, predictable
places to work, but can be slow to adapt and have weak
communication between different areas. Role cultures tend to be
found in large bureaucratic organisations such as local government.
Task culture: a job-oriented or project-oriented culture, in which

the expert is powerful because of an ability to complete the task;
this is found in many companies working on new technology
projects. These are adaptable, and facilitate quick communication,
but control can be difficult and they are expensive to run, making
them vulnerable in economic downturns. Task cultures exist in
advertising agencies or innovative design organisations.
Person culture: the individual is the central focus, for example in

firms of consultants and lawyers, and among doctors. Such cultures
allow the individual a high degree of freedom and may be difficult to
control as the organisation grows. Examples of person cultures
could include general practitioners (GPs) or barristers.
As you can see from the above examples, Handys cultural types can be
used to consider different patterns of culture within and across public
and private sector organisations. The culture within an organisation is
likely to differ between the private and public sector, which links back to
the values and beliefs. For example, public sector organisations will
tend to have a bureaucratic culture focussed on helping the public
through services provided but keeping within a tight budget. Private
sector organisations will be much more competitive and money
oriented, with individuals focussing on obtaining power and financial
rewards.
29
Handy, C (1993) Understanding Organisations. London: Penguin
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Exercise 1.11
The role culture is perhaps the one most closely identified with the
public sector, which is often seen as being hierarchical and
unresponsive. Try to identify examples of the other three categories in
public or not-for-profit examples. You may want to use whole
organizations for your examples or particular functions/subcultures
within larger organizations.
1.2.7 Laws and regulations

Public sector organisations by their very nature are required to provide
particular services under law. For example, local authorities must
provide social services to their local community. Such services are
known as statutory services. There are various forms of legislation that
outline the requirements of public sector organisations, such as the
Local Government Acts and the Health and Social Care Act 2008.
Furthermore, legislation also sets out the structure of bodies in place
which may change over time. For example, the Equity and excellence:
liberating the NHS White Paper published by the Department of Health
in 2010 set out plans to abolish the Primary Care Trusts and give
additional responsibilities to local authorities for public health.
Individual PCTs and local authorities had no say in this fate the PCTs
were abolished in 2013 and local authorities are obliged to adopt their
public health duties.
Often such legislation also incorporates inspections of public sector
bodies which will be further explored below. The specification, by
legislation, of statutory services for public sector organisations to
provide is clearly very different to the private sector, where individual
companies have the freedom to choose the direction and scope of their
activities. While laws set out a basic level of service with which the
public should be provided, they also place constraints on the individual
public sector organisations and the activities they pursue.
Another associated difference between private and public sector
organisations is in relation to the people to whom they provide their
service. The private sector is controlled by a market mechanism,
meaning that individuals have the choice of where to buy a particular
product or service from. An example is whether a family chooses to do
their weekly grocery shopping from Tesco, Asda or Sainsburys. In
contrast, local authorities serve the citizens within their constituency.
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Individuals cannot choose which local authority collects their household

rubbish; it will simply be collected by their local authority.
Managers in the public sector face what is termed the authorising
environment, which basically means that the needs and wants of
citizens are voiced such as through political processes, rather than
simply choosing not to purchase a product as in the private sector. The
authorising environment can also be relatively short term, primarily due
to the electoral cycle meaning that different politicians or local
councillors are often appointed every four years.
Policies set by central government impact on the strategies that will be
pursued by individual public sector organisations at the local level.
Formulating such policies is the forerunner for developing laws and
subsequent regulation in a cyclical process30:
Critical mass of concern responding to emerging issues, such as

pollution.
Policy formulation prior to implementation.
Standards setting the standards against which the regulation will

judge performance.
Statutes, regulations and rules outlining what must (or must not)
be done by the organisation.
Inspection gathering information such as through interviews or

observation.
Judgement interpretation of data gathered in the inspection stage.
Action by the regulatory authority, depending on the compliance

with standards identified.
Review ensuring that the existing standards and consequent

regulations are still appropriate.
This process, known as the regulatory cycle, is repeated over and over
again.
Regulation
Regulation has become increasingly important in the public sector over
recent years with various bodies established to regulate how public
sector organisations are run. Central government and the public place
reliance on such regulators to ensure that the public sector
30
Johnson, G. and Scholes, K. (2001) Exploring Public Sector Strategy.

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organisations are meeting their obligations and making good use of

public money.
Regulation may be defined as ...the process of ensuring that standards
and legal requirements are met for specific services or public activities,
in order to ensure that policies are fulfilled...31 Importantly, Johnson
and Scholes32 highlight that this definition distinguishes between
external and internal regulations. For example, a local authority may
be inspected by both internal and external audit. External audit in local
authorities is provided by government appointed auditors. Other
examples of external regulators in the public sector include:
Monitor the Independent Regulator of NHS Foundation Trusts
Care Quality Commission that regulates all health and adult social
care services in England, including those provided by the NHS, local
authorities, private companies or voluntary organisations.
Despite regulators being established externally to the public sector

organisations they regulate, the relationship between the two bodies
can become contentious. The following Public Finance article
demonstrates a recent example with the rail regulator.
PAC calls for reform of cosy rail regulator
MPs have called for the rail regulator to be reformed, saying that
without more teeth it is unlikely to be able to put effective pressure
on the industry to reduce costs.
In a report issued today, the Public Accounts Committee says the
Office of Rail Regulation (ORR) is too cosy with Network Rail, the
owner and operator of the railways, and that its sanctions for underperformance, including fines, are of questionable usefulness.
In addition, the ORR has not enforced a link between performance and
bonus payments to Network Rails senior managers, leading to bonuses
being paid despite the company failing to reach its targets.
Bonuses to senior staff at Network Rail which received 3.7bn in
direct taxpayer support in 2009/10 have been controversial since
former chief executive Iain Coucher accepted more than 600,000 in
2010 despite government calls for pay restraint.
The committee says that the high level of performance pay and
bonuses enjoyed by previous rail executives is simply unacceptable.
31
Stewart and Walsh, 1999, cited by Johnson, G. and Scholes, K. (2001)

Exploring Public Sector Strategy. England: Pearson Education Limited.
32
Johnson, G. and Scholes, K. (2001) Exploring Public Sector Strategy.
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The MPs call for the Department for Transport to review the regulators
powers, while the ORR itself should put in place a more robust
performance management system to monitor efficiency savings.
To make savings, Network Rail plans to reduce spending by about
1bn on renewing old tracks and replacing signalling, but the
committee concludes that there is considerable uncertainty over
whether deferring this work is genuinely efficient or simply delaying
costs for the future.
PAC chair Margaret Hodge said the ORR must obtain evidence that
putting off maintenance is efficient, sustainable and safe.
She added: We doubt whether the Office of Rail Regulation can put
effective pressure on Network Rail to improve its performance. Fines
simply reduce the amount of investment in the railways. Britain needs
a regulator with teeth, who can ensure proper value for money for both
the taxpayer and fare-payer.
The committees report, Office of Rail Regulation: regulating Network
Rail's efficiency, follows the McNulty review into the costs of the rail
industry published in May. This found that between 700m and 1bn
could be saved annually by 2019 through greater efficiency across the
industry, including train operators as well as Network Rail.
Responding to the report, ORR chair Anna Walker said the regulator
had been successful in challenging Network Rail to find significant
efficiency savings of 15bn over a ten-year period.
She added: This is in sharp contrast to other parts of the rail industry
that we do not regulate where costs have remained far too high. We
regulate Network Rail using a wide range of levers to drive up
performance, efficiency and safety. Fines are rarely used and only as a
last resort....
Private sector organisations are also subject to laws and regulations. A
tool to identify such laws that may impact on an organisation is PESTLE
which is further covered in Workbook 2 (section 2.1.1).
Exercise 1.12
Which regulators are involved in inspecting your organization?
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1.2.8 Ethics and corporate social responsibility

The focus on this section on ethics and corporate social responsibility is
specifically concerned with its relevance to strategy. However, you will
also be introduced to the key concepts. Corporate Social Responsibility
(CSR) and ethics are topics that have grown in emphasis over recent
years. As you will see, they also link in with stakeholders, considered
earlier in this workbook. This section will firstly look at ethics before
moving on to explore CSR.
Ethics
Ethical issues have rocked the business and accounting world in recent
years with scandals in a range of organisations. A recent ethical
scandal in the public sector is Members of Parliament (MPs) claiming
falsified expenses. As a result, many organisations have revisited their
ethical guidance, including CIPFA who published an updated guide for
members called 'Ethics and You a guide to the CIPFA standard of
professional practice on ethics' February 2011. As a CIPFA student you
should be both familiar and comply with this ethical guide. This
guidance explains that CIPFA has adopted the International Federation
of Accountants Code of Ethics with effect from 1st January 2011.
Exercise 1.13
Have a look on the CIPFA website to see how CIPFA is providing ethical
guidance to its members:
http://www.cipfa.org.uk/conduct/ethics.cfm
Take note of the five principles that the CIPFA Code is based on.
Ethics pervades decision-making and organisations to the extent that it

is becoming a key issue in organisational analysis. At a personal level,
the ethical implications of decisions include issues like fair trade,
environmental impact, and even the impact of investment, leading to
questions about pension fund management.
Organisational ethics also includes issues like equality of pay, which
continues to be the subject of debate as discussed in the following
Public Finance article.
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Spending cuts threaten equal pay push

The gender gap is closing in the public sector far quicker than in the
private sector but the government's spending cuts could slow this
down, according to the author of a report out today.
The Chartered Management Institutes(CMIs) 2010 National
management salary survey showed that, overall, womens pay
increased by 2.8% over the past 12 months compared with 2.3% for
men. But in the public sector, womens pay is increasing by four times
the amount of mens.
The gender pay gap between managers in the public sector is currently
6,837, compared with around 10,000 nationally. However, the
figure is 1,446 for junior executives which is higher than the
national average of 1,065.
The institute has calculated that, if trends stay the same, the pay gap
in the public sector will be closed in ten years, compared with 57 years
in the private sector.
The CMIs head of policy, Petra Wilton, told Public Finance: It is a
positive story in the public sector and at the current rate organisations
are far ahead of the other sectors in reaching equal pay. There has
been more progress in the sector, particularly in transparency, which
will help. We are also seeing high levels of female resignations,
meaning they are moving across departments, which will account for
why females are catching up.
But the public sector spending cuts will diminish the rate at which we
achieve equality. It is likely that there will be pay freezes, which will
affect how quickly we lessen the gap. She added that there is a
greater number of females being made redundant 4.5% compared
with 3% of men.
Unisons head of local government Heather Wakefield agreed that
spending cuts would widen the gender pay gap. The ten years it will
take to close the pay gap in the public sector is still ten years too long
given that people have had 40 years already to close the gap, she told
PF.
What is happening with cuts and employers working away from doing
positive single status agreements in local government and the NHS
being freed up for competition, we are likely to see a bigger gender
gap in the public sector.
A recent legal challenge from the Fawcett Society questioned whether
the June Budget was unlawful as public sector job losses will hit
women harder than men.
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Ethical issues are, therefore, faced by organisations at the corporate

level and can impact on strategies, such as in which companies to
invest pension funds. However, ethical issues are also faced by
individuals within an organisation, such as whistle-blowing or divulging
certain material to the press.
Corporate social responsibility (CSR)
CSR is ...the commitment by organisations to behave ethically and
contribute to economic development while improving the quality of life
of the workforce and their families as well as the local community and
society at large.33 As you can see, this definition of CSR is all
encompassing. Put more simply, CSR can be thought of as the issues
on which an organisation exceeds its minimum obligations.
The potential impact of an organisation on the surrounding environment
and community will depend on an individual organisations business and
size. However, you can perhaps immediately recognise how public
sector organisations such as NHS trusts or local authorities can impact
on the local community. Indeed the underlying role of such
organisations is to serve society.
There are different approaches to CSR that organisations may adopt,
ranging from complying with minimum obligations to the shaping of
society. Four stances on CSR, proposed by Johnson, Whittington and
Scholes34 are summarised below.
Laissez-faire
This is where the organisations primary focus is on short-term profits

for shareholders. Anything other than this is not a consideration.
Ethics is therefore seen to be outside the scope of the organisations
activities. Responsibility to society as a whole is not a factor in
organisational strategy.
The government sets minimum standards for organisations to adhere
to, and as long as these are met then that is the end of an
organisations responsibility. Corporations do the minimum that they
have to in order to comply with the law. Society in general now tends
to expect more than this extreme stance from large, and particularly
public sector, organisations.
33

34
ibid
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Enlightened self-interest
Here the focus is on longer term financial returns for shareholders,

rather than the more immediate pay-off. Still the focus is very much on
the shareholder, but there is more of an acknowledgement of
relationships that exist with other stakeholders, and that decisions must
be made with these in mind. This is still self-interest however, but
cannier as an organisation realises that if it is to achieve the best for its
shareholders in the long term there may need to be certain
compromises with different stakeholders along the way. In essence,
the justification for doing any social good is due to it making good
business sense.
Forum for stakeholder interaction
There is a wide stakeholder interest explicit in the organisational

purpose, with the focus being on a balance of stakeholders objectives
not just those which are purely financial. It could be argued that a
typical local authority has multiple stakeholder obligations. There is an
obligation to Council Tax payers to keep Council Tax increases to a
manageable level, but there are many other obligations to service
users. Educational responsibilities for children and parents, services for
residents such as street lighting, street cleaning, food inspection, pest
control, highways maintenance etc. Other services such as the
provision of social care to those who need it, such as the elderly,
children and young people at risk and those with mental health
problems, as well as support for their families and carers. The local
council serves a huge range of stakeholders from the very young to the
elderly.
Shaper of society
Here financial issues are secondary and the organisation is mission

driven. For example, Age Concern is concerned with shaping our aging
society and Oxfam aims to reshape our world by tackling problems such
as poverty, hunger and HIV.
With this stance, there is a conflict between achieving idealistic changes
in society and remaining financially viable.
Competitive advantage and CSR links
As mentioned earlier, the emphasis being placed on CSR by
organisations has grown in recent years. Indeed, governments,
activists and the media have all had a role in holding organisations to
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account for their CSR performance35. This has resulted in the public
responding to issues that previously they would not have become
involved with, meaning that CSR has become an important strategy for
companies to pursue in order to appeal to the publics new interest and
even using this as competitive advantage36. Protests by activists and
the public against social and environmental issues can have a huge
impact on a companys sales. Examples include child labour claims
against Nike and Primark, with environmental protests against Shell and
BP, all resulting in negative publicity for the companies and customers
responding by moving their trade elsewhere. Just as such protests and
publicity can have a negative impact on companies; many organisations
are now seeing CSR as a positive strategy to achieve competitive
advantage. Indeed, more and more the public are expecting high levels
of CSR to be provided by both companies and public sector
organisations.
1.2.9 Limited resources
As you saw from section 1.2.8, there are a variety of CSR stances an
organisation can adopt ranging from simply complying with legislation
to trying to make a real difference to society. Although the approach
adopted may be dependent on beliefs within the organisation and the
strategic direction being led by the management, it will also
undoubtedly be to some extent affected by the resources available.
Indeed, any strategy that an organisation pursues must be achievable
within the resources they have access to.
Resources within an organisation could include:
finance
people, including skills, knowledge and experience
infrastructure, such as buildings
information
There could also be the contribution from outside an organisation, such

as resources provided by suppliers or partnerships.
Any strategy an organisation establishes and pursues must be based on
a realistic assessment of the resources available. It may be that the
resources available are limited due to external factors, such as the
35
Porter, M. and Kramer, M. (2006) Strategy and Society: The link between
competitive advantage and corporate social responsibility. Harvard Business
Review, 84 (12): 78-92.
36
ibid
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recent times of austerity. Indeed, the recession and national financial

problems have had an impact on the strategies that can be pursued by
public sector organisations due to the limited resources which are
available.
The following extract from a Public Finance article demonstrates how
many local authorities have recently changed their strategies on how
much funding is provided to charities due to the current national
austerity drive.
Fair deal for third sector

Action on Hearing Loss, like most charities, is facing a tough budget
squeeze. But managing director of corporate resources Paul Breckell
tells PF its important that disabled people do not end up bearing the
brunt of the austerity drive.
Times are tough for third sector organisations especially for those
that rely heavily on public funding. More than 2,000 charities and
community groups face budget cuts as local authorities reduce or even
completely withdraw their funding, according to research by anti-cuts
organisation False Economy.
The research, based on Freedom of Information responses from
councils across England, shows that charities can expect net funding
reductions of more than 110m this year. The final figure is likely to
be even higher since some large councils have yet to decide where the
axe will fall.
Action on Hearing Loss is among many disability-related charities that
are feeling the pinch. Formerly known as the Royal National Institute
for Deaf People, it has a staff of more than 1,000 and a turnover of
45m. Around 45% of its income comes from public sources.
The charitys activities include advising people on how to look after
their hearing, funding research into hearing loss and campaigning on
behalf of the people it supports. It provides a variety of services,
ranging from adult social care for profoundly deaf people with
additional needs to community-based services for those with mild
hearing loss. In addition, it sells products such as doorbells that flash,
rather than make a noise, and listening devices that amplify sounds. It
is this area that has been most badly hit by public sector austerity
measures.
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Exercise 1.14
Think about your own organization and the recent austerity drive.
Identify how any reductions in resources have impacted on strategies that
were previously being pursued by the organization.
Do you think your organization has changed its strategy due to the limited
resources which are available?
1.3 Approaches to strategy

Organisations develop their strategies in a variety of ways and this
section looks at some of these approaches and breaks down such
strategy development into observable processes. A range of models for
developing strategy are introduced in the following sections and it is
important to consider why individual organisations may choose to adopt
one model in favour of another. One argument is a contingency-based
approach, where the organisation identifies the relevant variables for
their own situation. For example, variables including the speed of
environmental change, level of uncertainty and complexity, the
flexibility in available resources and considerations of risk and
accountability. While studying the various approaches and models in
the rest of this workbook think through these variables and how they
may impact on which model an organisation adopts.
1.3.1 Environmentally-driven strategy
An environmentally-driven strategy is based on an organisations
strategy fitting with its environment. This approach is based on the
view that effective strategy matches an organisations environment and
meets the demands derived from it. However, the environment in
which public sector organisations operate continually changes so it is
important for organisations to continually update their strategy to
ensure it remains consistent with the environment. Revising the
strategy with small changes on an on-going basis may be similar to an
incremental strategy, which will be returned to in section 1.3.6.
Of course, there are times when the environment may be changing at a
faster pace than usual. Increased speed of environmental change can
have a significant impact on strategies that are environmentally driven.
During such periods it becomes increasingly difficult for organisations to
keep their strategy fitting with the changing environment. Indeed an
amended strategy can become out of line with the environment fairly
quickly. Where the organisations strategy gradually moves away from
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relevance to the environment then strategic drift is said to occur.

Again this will be returned to in section 1.3.6.
One of the important issues in an environmentally driven strategy is the
focus being on the customer, known as a customer-centric
organisational strategy. What does the customer want and how are
their needs or desires changing over time? How can these changing
needs be met? A public sector example is the publics increased
awareness of environmental issues and recycling. Local communities
and pressure groups have been encouraging local authorities to expand
their recycling facilities and the items collected for recycling. The taxes
local authorities face for the use of landfill sites has also encouraged
public managers to maximise recycling.
Exercise 1.15
Thinking about your own organization, how do you think its strategy is
driven by the environment?
1.3.2 Systems based approach
The systems approach attempts to link all the factors affecting
organisations together. This section will firstly look at some of the
theory behind systems before looking at organisations as systems more
specifically. It sees the organisation as a system (in the same way that
in nature a body might be seen as a system, or thermostatic central
heating is seen as a system within a building) made up of a number of
linked sub-systems (the organs in the body, the various radiators, pipes
etc in a heating system). Every sub-system is made up of a series of
interactions between the inputs to it (for example air into the lungs),
the conversion process (into oxygen and carbon dioxide) and the
resulting outputs (oxygen to the blood, carbon dioxide back to the
atmosphere). The separation between the system and its surroundings
or environment is known as the boundary.
Systems approaches attempt to consider:
all parts of the organisation (the sub-systems)
interactions between those sub-systems.
The theory of the systems approach argues that it is essential to

consider all the elements of the system at once if we are to understand
the way the organisation behaves. So, for example, understanding the
make-up of the sub-systems and the way the input-conversion-output
process in each works, the way all the sub-systems link together and
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the impact of the outside environment on the way the whole system
operates.
The different parts or sub-systems of an organisation have been defined
in varying ways. Some commentators have defined the sub-systems as
the various departments (finance, marketing, production etc), whilst
Leavitt (1978)37 for example, defined the sub-systems as the different
aspects of the business:
the tasks performed (problem solving and improving organisational

performance)
the structure (patterns of organisation, authority, responsibility and

communication)
information and control (accounting and information processing

techniques)
people (attitude and interpersonal relations).
The use of systems thinking can be used by considering a particular

task that you carry out as part of your work. Imagine that you are
asked to review this task, in an attempt to improve efficiency or quality.
Using each of Leavitts elements in turn can provide a useful structure:
Task How would the improvement be planned (e.g. formally or

informally, individually or in a group)? Who would be involved?
Structure Where does your role fit into the organisations

structure? Who would be told about the improved way of working?
How would they be told? Who would be responsible if the change
was unsuccessful?
Information and control How would the process of planning the

new way of working be recorded? How would the organisation
assess whether the change had been a success?
People Which individuals and groups would be involved during the

whole process? What inter-personal and inter-group attitudes might
be relevant during the discussion and implementation of the new
way of working? How would they react to the change?
This example is applying the theory to a relatively simple individual task

but of course the same principles can be applied to developing an
organisational strategy.
Leavitt H.J. (1978) Managerial Psychology (4th ed.) University of Chicago
press
37
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Note that those who criticise theories such as the systems approach for
being an oversimplification should beware: to use a systems approach
for all the various sub-systems is to risk it becoming a hopelessly
complex task.
The organisation as a system Open Systems Theory
An organisation interacts with the outside world. For example, it takes
in people and resources, and gives out products and services. This is
known as an open system.
Within an organisation there may be many interrelated sub-systems
and many organisations are, therefore, highly complex and require
management at various levels this links back to sections 1.1.1 to
1.1.4 where you were introduced to the three levels of organisational
strategy: corporate; business/service; and operational strategy.
The open systems theory considers an organisation, and each of the
sub-systems within it, in terms of:
the environment in which it operates
its aims and objectives
the inputs
the transformation, or conversion that it carries out
the outputs
the goals that are achieved
An open system has a dynamic (interactive) relationship with its

environment. It receives inputs from its environment, processes them,
and returns the converted outputs to the environment.
Looking at the organisation as a system is useful because it encourages
consideration of a strategy from the differing perspectives of the various
parts of the business.
For an example of how this could be applied in practice, the open
systems model could be applied to a local education authority
considering the introduction within a large comprehensive school of a
new video link which will allow a single teacher to demonstrate physics
experiments to students in a number of schools. This would be one part
of the local education authoritys strategy.
Aim and objectives
The local education authority needs to be clear whether the schemes

aim is to save money, ensure consistent teaching, share ideas and
demonstration equipment or make lectures more exciting for pupils.
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Outside environment
How will the idea be received by the local education authoritys

stakeholders (school parents or governors)? Will the council which
funds the school believe it is a good use of funds? What will Ofsted
think of it?
Task
The new task involves creating the new computer link, an apparently
simple operation. However, identifying all the knock-on impacts (downtime in affected class rooms, administration of the system whilst it is up
and running etc) is a necessary part of the analysis. The inputs in
terms of things like staff training time and financial budget must be
considered, and the outputs (better results, reputation) clarified.
Technology
Questions of technology and the extent to which it is compatible
immediately arise because the various schools may be currently using
different systems. The actual inputs (software and hardware) need to
be identified and the specific form of the output determined (real
time/recorded etc.) In addition it will be important that the technology
does not become obsolete before the full value is gained from it, so the
cost and ease of updating must also be considered.
Structure
Would the timetable structure in use in the different schools allow all
groups to take part? What implications are there for salary and
payments for supplying new equipment? Which teacher will be in
overall charge?
People
When considering the people, what will be the effects on the students
view of their own teacher? What about that teachers self-image?
Management
The management of each school will need to make adjustments to their
normal arrangements in many areas and ensure that the change is
carried through on time and to budget.
A key part of systems thinking is the idea of feedback results are
compared against the goals set and action is then taken to alter inputs,
improve processes or review goal setting. In terms of strategy
development, feedback could be how well the strategy is being achieved
or whether it is still appropriate. The organisation may then amend
their strategy in view of the feedback. This could also be linked in with
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incremental strategy (section 1.3.6) where the strategy is gradually

changed in order to stay in line with the environment.
Exercise 1.16
Apply the following elements of a system to an organization with which
you are familiar:
Sub-system
Inputs
Transformation or conversion process
Outputs
1.3.3 Resource based approach
The resource-based view of strategy may be defined as being where
...competitive advantage and superior performance of an organisation
is explained by the distinctiveness of its capabilities.38 This approach
focuses on an organisations internal resources as a source for
success.39
In order to fully appreciate this approach to strategy, there are a few
terms which it is important to understand.
Strategic capabilities are the capabilities of an organisation that
contribute to its competitive advantage over other organisations. Two
key components of capabilities are resources and competences.
Resources are basically any asset that an organisation has or can
access40, such as through partnerships. This can range from buildings
to computer systems but also includes human resources such as
employees. Alternatively you could think of resources as anything an
organisation uses to develop, produce or deliver goods or services.41
Competences are how an organisation actually uses their resources.
38
Johnson, G. Whittington, R. and Scholes, K. (2011: page 83) Exploring Strategy Text and
Cases, Ninth Edition. Harlow, England: Pearson Education Limited.
39
Knutsson, H., Mattisson, O., Ramberg, U. and Tagesson, T. (2008) do strategy and
management matter in municipal organisations? Financial Accountability and Management,
24(3), 295-319.
40
Johnson, G. Whittington, R. and Scholes, K. (2011) Exploring Strategy Text and Cases,
Ninth Edition. Harlow, England: Pearson Education Limited
41
Knutsson, H., Mattisson, O., Ramberg, U. and Tagesson, T. (2008) do strategy and
management matter in municipal organisations? Financial Accountability and Management,
24(3), 295-319.
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Core competences may be defined as ...the linked set of skills,

activities and resources that, together, deliver customer value,
differentiate a business from its competitors and, potentially, can be
extended and developed.42 In effect, core competences are an
organisations competences which are difficult for competitors or other
organisations to imitate. Organisations may use their core competences
as a basis to develop their strategy, known as the core-competences
based approach.
The following table considers resources and competences at a fire
authority.
Resources category
Example resources
Physical resources
Fire station
Ways of fully utilising

the fire station, fire
Fire engines
engine and control
Control centre and
centre to effectively
emergency call system provide the fire rescue
service
Financial resources
Cash flow
Funding
Human resources
Fire-fighters
Managers
Intangible resources
Reputation
Example
competences
Ability to manage cash

flows and raise funds
Skilled, knowledgeable
fire-fighters equipped to
fight fires. Experienced
and motivated
managers.
Recruiting the best
people.
In a period of austerity there is much talk of the resources which public

sector organisations have access to, such as reduced funding.
However, within this resource-based approach to strategy, it is
important that organisations have the capability to use the resources
42

Limited.
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they have access to.43 It is the possession of capabilities as well as

resources that enable organisations to achieve success and gain
competitive advantage.
So, resources and competences are important elements of the
capabilities required to achieve competitive advantage. In terms of
strategy formulation, though, it has been proposed that an
organisations strategy should be designed around an organisations
most important resources and capabilities.44 This may mean that an
organisation will limit its strategy to those activities where it possesses
a competitive advantage.45 The following model by Grant46 sets out the
link between resources, competences, competitive advantage and
strategy formulation:
1. Identify the organisations resources - including opportunities for
better utilisation of their resources.
2. Identify the organisations capabilities including what the
organisation can do better than its competitors.
3. Appraise the potential for competitive advantage for the resources
and capabilities identified.
4. Select an organisational strategy which best exploits the
organisations resources and strategy.
5. Identify any gaps in resources that may need to be filled.
Exercise 1.17
This exercise tries to help you apply the theory of the resource-based
approach to strategy to your own organization.
For your own organization identify examples of the following:
resources
competences
How do you think the resources and competences you have identified
43
Knutsson, H., Mattisson, O., Ramberg, U. and Tagesson, T. (2008) Do

strategy and management matter in municipal organisations? Financial
Accountability and Management, 24(3), 295-319.
44
Grant, R.M. (1991) The resource-based theory of competitive advantage:
implications for strategy formulation. California Management Review, 34(3),
114-135.
45
ibid
46
ibid
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assist your organization in achieving competitive advantage?
1.3.4 Rational strategy

The rational view of strategy development (also known as the intended
approach) is based on the view that strategies develop as
...deliberately formulated or planned by managers.47 There are three
primary ways that the strategy may develop as a result of:
strategic leadership
strategic planning
externally imposed strategy
This section will consider each of these in turn.

Strategic leadership
This is where an individual drives strategy creation and implementation
and where any change is dependent upon the decisions of an individual.
For example, this could be the owner/founder of a small business or
perhaps a chief executive of a small charity.
The individual may well go through a formal planning process, although
this is likely to be less obvious to others and there is no requirement for
it. There is a risk involved when the experience that matters is that of
a single individual. In family businesses in particular, the individual
starts to be seen as the embodiment of the strategy and may start to
be seen as entirely responsible for its success or failure. Relying on an
individual is a very narrow focus.
This approach to development is likely to increase the personal
influence, power and legitimacy of the strategic leader. This could be to
the detriment of the organisation and stakeholders if this is used for
self-serving purposes.
Although possible in some organisations, the bureaucracy in the public
sector is likely to reduce the occurrence of this approach in many public
sector organisations.
47

Limited.
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Strategic planning
The following steps suggest the process that a formalised strategic
planning system may follow.
Environmental analysis and internal analysis
Determine strategic criteria
Analysis of strategic options
Choice of best option(s)
Detailed plans for chosen strategy
Firstly, there is likely to be a timetable that the organisation adheres to

as key strategic decisions may need to be made at specific points in the
year. This is particularly true of public sector organisations as some of
the key dates may be imposed upon them. For example, Council Tax
charges have to be set by a particular date. A formalised strategic
planning system gives order, so a logical process with key dates,
meetings, decision and action points are needed to ensure that the
strategy development proceeds to the allotted timetable.
Next we have the environmental analysis and internal analysis. These
are developed tools such as SWOT for identifying our strengths,
weaknesses, opportunities and threats, PESTEL for identifying
environmental factors and key structural drivers, and other tools such
as value chain analysis and stakeholder analysis we will be looking at
later on the course.
Once we have analysed the organisation and its place in the
environment this informs the strategic criteria that is used to evaluate
the strategic options available to us. We will look at strategic options in
more detail in workbook 3.
Once we have chosen a strategic option, detailed plans, such as
operational and service plans, will need to be developed to ensure that
our strategy is actually acted upon.
Some advantages of adopting formalised strategic planning systems
include:
It provides a structured analysis and way of thinking which may
encourage a questioning attitude.
It encourages a longer-term view as it formalises the process of
setting long-term objectives.
It is useful as a means of control as the process ensures that
strategic development will happen, and that you can see that it has
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happened. Meetings are planned, minutes are taken, action points are
noted, responsibilities and deadlines are allocated.
It helps to co-ordinate the various parts of the business. For
example, the process in local authorities and other organisations will
involve the allocation of resources across all service areas, and the need
to determine which areas of service are key priorities and which are not.
Communicates the strategy to the staff. The formalisation of the
process will mean that minutes of meetings, action points, service
plans, operational plans and other key documents will be produced by
the process and be accessible to key stakeholders including staff.
Participation can improve commitment. A number of key
stakeholders, such as staff, elected members, board members etc will
be involved in the process and such involvement can improve
commitment because it can foster a feeling of shared ownership.
Externally imposed
Imposed strategy is where strategy is developed externally for an
organisation, for example by Central Government or within a multidivisional organisation imposed by the corporate head office. The key
point is that strategic development is dominated and determined by a
particular powerful stakeholder. Although imposed on the organisation
in question, obviously the strategy must have been designed
somewhere.
Some Governments argue that their strategy imposition is necessary
to overcome the inertia arising from incremental strategies. The
development of incremental strategies is further explored in section
1.3.6.
The concept of imposed strategy is particularly relevant to public
services, as the extent to which all public services organisations are free
to decide their own strategies is a subject of continual debate. The
extent of strategic freedom is tied up in the issue of localism, which is
the extent of local control over issues. Localism devolves power to local
groups, giving them strategic freedom the question is always to
which groups should power be devolved? - National government,
regional, county, district, parish or some alternative grouping?
Of course, just because these strategies have been deliberately
developed by managers it does not mean that the strategy will actually
be fulfilled. This is the distinction between an intended (planned) and
realised (actually occurred) strategy.
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Exercise 1.18
1. Are the following statements true or false?
a) Imposed strategy is developed by a dominant leader within the
organization
b) Strategic leaders manage strategy alone
c) Imposed strategies are common in the public sector
2. Identify the five steps a formalised strategic planning system may
follow.
1.3.5 Emergent strategy
One method of how strategies develop is emergent (or adaptive)
strategy, where ...strategies emerge on the basis of a series of
decisions, a pattern which becomes clear over time.48 The concept of
the emergent strategy, which was originally generated by Mintzberg, is
now widely accepted in the academic literature with four key
explanations on how emergent strategy occurs:
logical incrementalism
political processes
prior decisions
product of organisational systems
This section will consider each of these alternative explanations for

emergent strategy in turn which can be thought of on a continuum
based on the extent the process is deliberately managed.49
The key challenge with emergent strategy is in ensuring the coordination of the strategy across the organisation as it develops and
that it follows the priorities set by those in charge of the organisation.
This is largely down to setting a clear vision.
Logical incrementalism
Logical incrementalism may be defined as ...the development of a
strategy by experimentation and learning...50 and is a deliberate
strategy development. Managers know where they want the
48

Limited.
49
50
ibid
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organisation to be, and move towards it in small steps, constantly

scanning the environment and testing the strategy. The emphasis is
very much on learning and is therefore often linked with the concept of
the learning organisation which you will study in more detail in section
1.3.9 of this workbook.
There are four main characteristics of strategies developing under
logical incrementalism:51
Environmental uncertainty managers constantly scan the

environment to identify changes.
General goals are stated upfront in order to avoid stifling ideas by

overly specific objectives, thereby allowing alternatives to develop
or emerge.
Experimentation the secure, core business remains flexible and is

built on by experience. Learning by doing is the key to this
approach.
Co-ordinating emergent strategies a mixture of formal and

informal processes may be used by managers to combine the
emerging strategies. The strategy must also be formalised and
communicated to key stakeholders.
This approach is therefore dynamic and flexible which is well suited to

situations where the environment is continually changing, which is often
the case in the public sector.
Political processes
The political view of strategy development is that ...strategies develop
as the outcome of bargaining and negotiation among powerful interest
groups (or stakeholders)...52 where the stakeholders may be internal
or external to the organisation.
An example of such bargaining politics in the public sector could be
between the councillors and officers within a local authority or a hung
council, either at the local or national level. The existing coalition
Government in the UK, which comprises the Conservatives and Liberal
Democrats, will be developing strategies for the coalition through the
bargaining and negotiation between members of these two political
51
ibid
Limited.
52
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parties. The following extract from a Public Finance article shows how
the Liberal Democrats have had to compromise and negotiate on the
coalitions strategy on student university tuition fees.
No LibDem rebellion on student fees, says peer
The Liberal Democrats will back Lord Brownes recommendations on
higher education funding but might push for employers to contribute
more, a leading LibDem peer has told Public Finance.
Lord Willis, who during the last Parliament chaired the Commons
innovation, universities, science and skills select committee, said there
were significant flaws with the graduate tax, which he and Business
Secretary Vince Cable had previously supported. He added that
Brownes proposal for a Student Finance Plan was a fair compromise.
Brownes report, published today, recommended that universities be
allowed to set their own fee levels, which will be paid off after a
student graduates.
There has been speculation that some LibDem MPs will oppose the
proposals. The party fought the general election on a platform
opposing tuition fees, but Willis said: I dont believe there will be a
LibDem rebellion. I believe the party is mature enough to recognise
that it is a very different scenario being part of a government and
facing the largest fiscal deficit the nation has ever seen.
Our twin objectives of trying to maintain a world-class higher
education system and universal access to it have largely been achieved
by the Browne recommendations.
However, he added: I would be the first to accept in an ideal world we
would like the state and employers to put a great deal more into the
pot than they are at the moment. I am pretty sure that, in the
passage of any legislation, the party will be seeking to make further
improvements in the offer. He said he thought it would be accepted
by Parliament, with some amendments.
Prior decisions
Strategies may also emerge as the product of prior decisions which
inform (or possibly even constrain) strategy development. It would not
be viable for an organisation to change their strategy fundamentally on
a regular basis and therefore makes sense for a strategy to emerge
more gradually based on prior decisions.
There are a range of other factors that may also impact on the
development of a strategy within this approach, such as an
organisation's culture. You may find it helpful to look back over section
1.2.6 of this workbook where you considered culture in more detail.
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Organisational systems
This fourth explanation for the development of emergent strategies is at
the opposite end of the continuum to logical incrementalism in terms of
how deliberate the strategy development actually is. It is proposed that
strategies emerge based on lower level managers responding to issues
with the systems and routines undertaken within the organisation. The
strategy development is more of a bottom-up approach compared to
the top-down approach considered earlier.
Examples include the finance director in a police authority being
primarily concerned with the financial systems. It could be that
systems linked with targets being measured by central government will
receive disproportionate attention at the expense of other areas.
Exercise 1.19
Consider the extent the strategies developed in your own organization are
emergent.
Which of the four explanations for the development of emergent strategy
do you think fits best with your organization?
1.3.6 Incremental strategy
Incremental strategy and strategic drift were mentioned earlier in
section 1.3.1. However, this section looks at the incremental approach
to strategic development more specifically.
Rational models, such as that explored in section 1.3.4, have been
criticised as being unrealistic, due to the impossibilities of predicting an
uncertain future. There are limits on what managers can actually
predict. The best that can be expected has become known as bounded
rationality where ...managers do the best they can within the limits of
their circumstances, knowledge and experience.53 Other models to
explain strategy development have therefore emerged, such as
incremental strategy as a method of responding to the actual
environmental changes on an on-going basis.
The strategies in many organisations change incrementally that is on
a gradual basis. Most organisations use what has happened (and has
been successful) in the past as a basis for future strategies. Often
there is a period of continuity where strategy is largely unchanged or
53

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changes are incremental, step by step, in keeping with changes in the

environment in which it operates. Johnson, Whittington and Scholes54
suggest there are three key reasons for the incremental changes in
strategy that are evident in many organisations:
environment is changing gradually so the organisational strategy is

remaining aligned with the environment
the strategy was successful in the past so managers are reluctant to

change
managers use their experience and learning but remain close to

their capability base (this is similar to logical incrementalism
explained in section 1.3.5).
Other factors that impact on the strategy developed by an organisation

will still have an impact, irrespective of the model adopted. For
example: stakeholder objectives and power.
Of course, the pace of environmental change will impact on how
gradually the strategy in an organisation develops or how closely
aligned the organisational strategy remains to the environment. One
danger with incremental strategic development is that the strategy fails
to keep pace with rapid environmental change. In such cases strategic
drift may occur.
Strategic drift
Strategic drift may be defined as ...the tendency for strategies to
develop incrementally on the basis of historic and cultural influences,
but fail to keep pace with a changing environment.55
Basically, strategic drift is said to occur where the organisations
strategy gradually moves away from relevance to the environment.
Should this continue, and the gap between what the organisation is
offering and what the environment wants grows, then the organisation
will go into flux.
The state of flux refers to when strategies change but in no clear
direction. It may be that an existing strategy is rendered no longer
suitable because of falling profits, changes in taste or a significant and
sudden change in the environment, in which case an organisation will
be in a state of flux whilst trying to determine the appropriate future
direction.
54
ibid
55
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If an organisation continues in a state of flux with a continued gap

between their strategy and the environment, there are three possible
outcomes:56
the organisation will die
organisation is taken over by another organisation
organisation goes through transformational change
The transformational change stage is a fairly infrequent fundamental

change of direction, perhaps a response to a pivotal event such as the
global banking crisis, economic downturn or a new and aggressive rival.
We often think of an organisation in flux as a failing organisation, and
so transformation is a turnaround. Demise in the public services usually
means being re-structured or merged out of existence. The demise of
the Audit Commission and restructuring of the NHS, with the abolition
of primary care trusts (PCTs) and strategic health authorities (SHAs),
are current examples.
Exercise 1.20
Identify an organization that you consider to be pursuing an incremental
strategy. Explain to what extent strategic drift is a risk to this
organization.
1.3.7 Freewheeling opportunism
Some strategy development approaches, such as the rational approach
in section 1.3.4, involve rather rigid and bureaucratic processes which
can stifle innovation and flexibility. It is often in response to these
disadvantages of the rational approach that other strategy formation
approaches have developed, such as freewheeling opportunism.
In contrast to the rational approach, freewheeling opportunism is
basically where there is no formal approach to strategy development.
As the name suggests, Mintzberg refers to this as an opportunistic
strategy, where organisations search for opportunities. In fact, no good
opportunity should be missed under this philosophy. You may also see
this approach called the entrepreneurial model, which is in line with an
entrepreneur looking to take such opportunities which may be risky.
56
ibid
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This entrepreneur is usually key in organisations where freewheeling

opportunism exists and, consequently, this type of strategy
development is classed as being a top-down approach.
Due to its informality, freewheeling opportunism has a range of
advantages in comparison to more formal approaches:
speed, in being able to take advantage of opportunities and combat

threats quickly
focusing on opportunities, such as new markets or services
less bureaucratic and time-consuming
less complicated
increased flexibility
However, there are also disadvantages with such an informal approach:
lack of long term direction
unsuitable for substantial change
over reliance on a single individual (the entrepreneur)
Obviously the suitability of freewheeling opportunism depends on the

organisation and the situation, but it is best suited to a regularly
changing environment and on-going uncertainty. Although this may
sound like the environment of many public sector organisations, these
tend to be more bureaucratic and require more structure.
Exercise 1.21
Consider your own organization and contrast how freewheeling
opportunism may be used for strategy development rather than the
rational approach.
1.3.8 Creative strategy
In section 1.3.3, within the resource-based approach to strategy,
resources and competences were defined. A further example of how
resources and competences may achieve competitive advantage for an
organisation is through organisational knowledge. Organisational
knowledge may be defined as ...the collective intelligence, specific to
an organisation, accumulated through both formal systems and the
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shared experience of people in that organisation.57 The challenge for

organisations is to use this knowledge and convert it into action. When
considering how this can be done, it is important to realise the
difference between:
Explicit knowledge - knowledge that the organisation and its

employees know that it has, that can be easily communicated and
quantified. Explicit knowledge is transmitted through formal
methods, such as an instruction manual.
Tacit knowledge - knowledge that is understood but rarely

described. Tacit knowledge is hard to formalise and communicate
and thus difficult for competitors to replicate.
The distinction between explicit and tacit knowledge was highlighted

through Nonakas Knowledge Creating Company. Nonakas argument is
that in an environment where uncertainty is certain, knowledge is the
surest way of achieving competitive advantage.58 The sole business of
a knowledge-creating company is continuous innovation. Innovation
may be defined as ...the conversion of new knowledge into a new
product, process or service and the putting of this new product, process
or service into actual use.59
New knowledge begins with an individual and innovation is also
proposed to start with the personal tacit knowledge.60 Now, the
distinction between tacit and explicit knowledge outlined above, is
proposed to result in four possible models for how knowledge is created
in any organisation:61&62
Combination
57

Limited.
58
Nonaka, I. (1991) The Knowledge-Creating Company. Harvard Business
Review, 85(7/8): 162-171.
59
Limited.
60
Review, 85(7/8): 162-171.
61
Barlow, C.M. (2000) The Knowledge Creating Cycle. Illinois: The CoCreativity Institute.
62
Review, 85(7/8): 162-171.
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This process involves taking explicit knowledge, combining it with other

explicit knowledge and forming new explicit knowledge. Such a process
is the creation of knowledge that we as individuals are most familiar
with. Indeed you studying for your CIPFA exams is an example of this
explicit to explicit knowledge. In an organisation, the combination
process could be evidenced through the development of a new
procedures manual, based on existing explicit knowledge.
Internalisation
The internalisation process involves explicit knowledge becoming tacit
knowledge. This is where an individual learns something (explicit
knowledge) and once it becomes deeply embedded it is automatic or
inbuilt (tacit knowledge). For example, when you first started learning
to drive you probably had to be told what to do and consciously think
through which pedal to use when. However, once youve been driving a
few years the process becomes automatic you simply get in the car
and drive to your destination without thinking about how to actually
drive. Similarly, within an organisation, employees often learn new
procedures by referring to a manual but after a while they have learnt
the process and can carry it out automatically the knowledge has
been internalised or transferred from being explicit to tacit knowledge.
Socialisation
This process involves one person learning tacit knowledge from another
individual, such as through observation or copying. This is a valuable
human technique where we observe and learn simply through
socialising. It may be when you started your job that initially you
simply observed what another employee was doing and through this
observation you picked up what you should be doing. Apprenticeships
are another good example of this type of knowledge transfer. However,
this process is limited within an organisation as the knowledge of the
individuals involved never becomes explicit and is therefore difficult to
be grasped or adopted widely within an organisation.
Externalisation
The externalisation process involves tacit knowledge being transformed
into explicit knowledge. So, for example, it could involve someone with
personal knowledge writing their tacit knowledge down in a manual so
that others may learn. However, this process is not always as easy as
it may seem. An example might be the finance director who, instead of
merely compiling a conventional financial plan for his company,
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develops an innovative new approach to budgetary control based on his

own tacit knowledge developed over years in the job.63
Exercise 1.22
Nonakas model stresses the importance of actively managing learning
processes within the organization and managing the knowledge which is
such an important intangible resource of any modern business. Consider
the ways in which such activities are managed in your own organization.
In particular consider:
Whether there is a bias towards one or more of the four knowledgecreation routes outlined Nonaka, possibly to the detriment of
others.
How the soft or tacit knowledge of experienced staff is put to use.
What knowledge management systems are in place in your
organization.
The creative element of strategy development involves innovation

which, as we have seen, involves an individual and tacit knowledge to
develop. Clearly in order for it to be developed into an organisation
wide strategy this tacit knowledge would need to be transferred into
explicit knowledge. For example, an individuals innovative ideas may
be written down in the strategic document for the organisation an
example of the externalisation process from above. In bureaucratic
organisations such as in the public sector, it is important not to under
value tacit knowledge which can be crucial to the organisations success
and competitive advantage. Innovation, however, is an area that the
public sector tends to shy away from, as the following article from
Public Finance highlights.
Public sector should innovate instead of outsourcing
Putting public services out to tender avoids the issue of how to
increase productivity, a report out today warns.
The Work Foundation argues that the governments policy of involving
63

Review, 85(7/8): 162-171
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more providers in public services is failing to produce the innovations

that could increase value for money and productivity.
Making the most of public services: a systems approach to public
innovation argues that the public sector should carry out its own
innovations, rather than lose them to the private sector through
outsourcing. It could do this by forming collaborative relationships to
jointly develop products and services.
The government spends 50bn a year on intangible knowledge-based
assets, which the report says are the main drivers of innovation. These
include staff, software and research and development.
The Work Foundation argues this money is spent with little
understanding of how to support innovation to provide the greatest
value for money.
Lead author Charles Levy says without improvements, there is a
danger that spending cuts and public service reforms will stifle
innovation, losing the chance to reverse declining public sector
productivity.
The report calls for guidance to be provided to all government
departments on valuing and managing investment in intangible assets,
which could improve productivity.
Levy says: Public sector innovation has the potential to radically
improve value for money at a time of growing demand. In spite of
this, there has been very little research into how public services invest
in and support innovation. Putting services out to tender avoids the
issue, and with rapid, swingeing cuts now being made across the
board, there is a real danger that innovation will be cut along with
spending.
If the coalition is not to throw the baby out with the bathwater, it must
look to the private sector as an example rather than a substitute for
public sector innovation.
Exercise 1.23
a) Briefly explain the four ways that knowledge is proposed to be created
in an organization.
b) Try to think of examples in your own organization for each of these
four knowledge processes.
Creative strategy may be seen as a response to the limitations of the
rational strategic model explained in section 1.3.4. However, this use
of knowledge as a means of gaining competitive advantage is also
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similar to the concept of the learning organisation, which is now further

explored in the next section.
1.3.9 Learning organisations

A learning organisation is one ...that is capable of continual
regeneration from the variety of knowledge, experience and skills of
individuals within a culture that encourages questioning and
challenge.64
The learning organisation starts with the idea that the world is too
complex and dynamic to use formal analysis and planning and indeed it
could also be argued that top managers are more out of touch with the
outside world than the rest of the organisation.
Within a learning organisation:
Conflicting ideas and views are encouraged.
Social networks are more valuable than formal hierarchies.
Political bargaining and negotiation are not necessarily a bad thing,

because out of the process can come innovation.
Senior management need to build teams and networks and build in

time for debate to encourage the stimulation for new ideas to
emerge.
Argyris and Schn65 suggest that learning involves the detection and
correction of error. When something goes wrong, they propose that
many people initially look for another strategy that will address and
work with the variables involved. What this means is that given or
chosen goals, values, plans and rules are operationalized rather than
questioned. This is termed single-loop learning.
As an alternative to single-loop learning, Argyris and Schn propose
double-loop learning, which is where people respond by questioning the
governing variables themselves, and subject them to critical scrutiny.
64

Limited.
65
Smith, M. K. (2001) 'Chris Argyris: theories of action, double-loop learning
and organizational learning', the encyclopedia of informal education,
www.infed.org/thinkers/argyris.htm.
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Such double-loop learning may result in the governing variables being

changed and, therefore, a change in the way strategies are framed.
Learning organisations are a particular type of organisation with specific
characteristics. Indeed, Senge66 proposes the following five disciplines
in relation to learning organisations:
Systems thinking - where organisations are seen as a system of

interrelationships. In order to become more successful
organisations need to analyse their relationships and identify any
problems. This will then allow an organisation to eliminate
obstacles to learning.
Personal mastery where an individual within the learning

organisation holds great importance. Personal development holds
as much importance as commitment and work for the organisation.
It is therefore seen that employees need to grow and work on their
own goals.
Mental models which is the company culture and the diverse

theories and mindsets that serve as a framework for the functioning
of the organisation. Learning organisations then need to identify
how these affect organisational development.
Shared vision where the employees of a learning organisation all

share a common vision. The goals of individuals must therefore be
consistent with the goals and vision of the organisation.
Team learning where the importance of dialogue and group

discussion is recognised. In order for a team to learn, they must be
in sync and reach agreement.
Furthermore, Pedler et al67 propose that there are 11 characteristics for

learning companies or organisations:
Adopt a learning approach to strategy - meaning that an

organisations policy and strategy formation, together with its
implementation, evaluation and improvement, are specifically and
deliberately structured as a learning process.
Participative policy making such as involving individuals

throughout the organisations in discussing and contributing to major
policy decisions.
66
Senge, P. M. (1990) The Fifth Discipline: The Art and Practice of the
Learning Organization. Century Business.
67
Pedler, M., Burgoyne, J. and Boydell, T. (1991) The Learning Company: a
strategy for sustainable development. Maidenhead: McGraw-Hill.
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June 2014
Informating (Information Systems) - where information technology

is used to inform and empower people.
Formative accounting where the systems of accounting, budgeting

and reporting are structured to assist learning. This may involve
procedures such as targeting, review and appraisal.
Internal exchange (client-server relationships) such as where all

departments within an organisation view themselves as customers
and/or suppliers.
Reward flexibility new and alternative approaches for rewarding

individuals.
Roles and flexible, matrix structures loosely structured roles and

departmental structures that are flexible to adjust to the changing
needs of the organisation. The nature of matrix structures will be
explored in more detail in Workbook 4.
Boundary workers as intelligence agents such as where individuals

scan the environment to identify changes that the organisation can
respond to and learn from. This links in with an organisations
analysis of the environment which is considered in more detail in
Workbook 2.
Company-to-company learning such as undertaking activities with

customers and suppliers that facilitate learning, including joint
training and job secondments.
Learning climate where managers see their main task as

facilitating their subordinates to experiment and learn from their
experience, including the acceptance of mistakes.
Self-development opportunities for all where the organisation

provides resources and facilities for the self-development of its
employees.
The learning organisation disciplines and characteristics summarised

above were devised with reference to the private sector. However, the
principles still stand and may be applied to public sector organisations.
Indeed, the learning organisation principles are proposed to have
particular relevance to the public sector and have been proposed as
being a useful model for improving public services, such as mental
health provision. Another example could include the research and
development departments within a public sector organisation or the
NHS National Innovation Centre (NIC). NIC aims to speed up the
development of pre-commercial technologies likely to benefit the NHS
by supporting and working with innovators, clinicians and
commissioners. In practice, though, there are few (if any) examples of
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real learning organisations in the public sector. This is due in part to

the typical culture in public sector organisations where there are clear
procedures and bureaucracy which individuals follow in contrast to the
acceptance of mutual questioning and challenge to ideas that is
encouraged within a learning organisation.
Exercise 1.24
Think about your own organization and consider how it compares to the
definition of a learning organization and the 11 characteristics.
What elements of being a learning organization do you think your
organization possesses?
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Summary
This workbook set the scene for the module by defining organisational
strategy and introducing the different levels of strategy within
organisations. A range of factors that influence strategy were explored,
such as an organisations core values and culture.
You should also understand alternative approaches to developing
organisational strategy, ranging from the planned rational approach to
the creative and environmentally driven strategies.
This workbook introduced many key concepts which will be built on in
the rest of the course. It is therefore important that you fully
understand these issues before moving on.
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Additional exercises
Exercise 1.25 (exam standard)
For large organizations strategy will exist at different levels. One of the
principal challenges facing such organizations is to integrate or cascade its
strategy effectively throughout the organization.
As part of an organizations strategy, many public sector organizations
have mission statements. Indeed, mission statements are held in high
esteem by many experts, and equally ridiculed as management fashion by
others.
a)
Requirements
Explain the different levels at which strategy exists in large
organizations.
(9)
b)
c)
Describe what a mission statement is, and explain the issues

that a mission statement attempts to address for a public sector
organization.
(10)
Explain the purposes for which a mission statement can be used
within a public sector organization.
(6)
(25)
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It is argued by some in the public eye that public service organizations
have a greater ethical duty than private sector organizations due to the
ultimate source of their funding - the taxpayer.
The impact of a strategic decision, or strategy, is rarely seen immediately.
It can often take months or even years before noticeable changes take
place. Therefore, it is important before deciding on a revised strategy or
implementing an entirely new strategy that all aspects (impacts) are
considered.
This is not an easy task for example very few organizations anticipated
the financial crisis of 2008/2009. However, there are a number of
tools/techniques available to focus the minds of strategic managers.
A cultural web is commonly used to identify the organizations current
culture (sometimes known as mapping organizational culture) but it can
be used to anticipate the impact of a strategy on the organizations future
culture. For example, it may be determined that an organization will
merge two departments, or two organizations themselves merge. A
cultural web can be drawn that depicts the impact of that change on the
culture.
a)
b)
c)
Requirements
Johnson, Whittington and Scholes refer to four corporate social
responsibility stances that an organization may take as part of
its strategic development. Describe the four stances and
identify the stance you consider to be dominant in the public
sector, justifying your answer.
(8)
Describe corporate social responsibility and explain why is it
relevant to the public sector.
(12)
Explain what is meant by core values and describe their
relationship with an organizations mission and vision.
(5)
(25)
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Hardworking and heroic civil servants are being let down by a Whitehall
culture that rewards failure and ignores successful individuals, a report by
a leading think-tank has claimed.
Following a series of damning reports on central government
departments ability to deliver effective public services, the Institute for
Public Policy Research has claimed that civil service structures must be
overhauled so that they reward innovation and focus on excellence.
The IPPR has compiled its own league table of Whitehall departments
assessed under the Cabinet Offices fledgling Departmental Capability
Review system. It concludes that five of the seven organizations
reviewed require urgent, serious or, at best, development action to
improve because they do not have the capacity to deliver their services
adequately.
The departments include the Home Office, the Cabinet Office,
Communities and Local Government, Education & Skills, Work & Pensions
and Constitutional Affairs. DCRs undertaken at the departments since last
summer have exposed problems with the Child Support Agency, Jobcentre
Plus benefit offices and magistrates courts, for example. But the thinktank blames the structure and culture of Whitehall for the problems
(Public Finance 05/01/07)
a)
b)
c)
Requirements
Use the cultural web to describe the culture and paradigm of an
organization with which you are familiar. In doing this you
should define each element of the web, giving an example of it
from your organization, and comment upon the significance of
each example for the organizations culture.
(16)
Explain the ways in which you think that the above cultural web
is reflected in your organizations approach to strategic
management.
(5)
Briefly outline Charles Handys four cultural types.
(4)
(25)
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June 2014

The way the NHS in England provides urgent care is to be radically
reformed over the next five years, after medical director Sir Bruce Keogh
set out plans for the creation of two types of hospital accident and
emergency department.
Keogh today published the conclusions of his review into the future of
emergency care. This found that the current A&E system was under
intense, growing and unsustainable pressure as a result of rising demand
from an ageing population and a confusing and inconsistent array of
services outside hospital.
As a result, he said, two types of hospital emergency department should
be created as part of a five-year reform plan.
(Public Finance, 13/11/2013)
a)
b)
Requirements
Identify and describe the approach to strategy development you
believe to be dominant in the NHS, justifying your answer.
(5)
Identify and describe the other approaches to strategic
development and assess their prevalence in the wider UK public
services. You should justify your views with supporting
examples.
(20)
(25)
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Strategies set out an organizations long term direction. However, there
are various methods an organization could adopt to actually set their
strategy. Some of these approaches may be seen to be more applicable
to the public sector than others. Furthermore, a strategy should not be
static but rather dynamic to ensure that it remains fit for purpose.
Requirements
(a) Explain and compare the environmentally driven and

incremental approaches to strategy development. Use examples
to demonstrate how such approaches may be applied to the
public sector.
(10)
(b) Explain creative strategy development, including the alternative
knowledge creation models and how they may be applied by a
public sector organization.
(12)
(c) Identify three other approaches to strategy development.
(3)
(25)
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\ CIPFA EDUCATION AND TRAINING CENTRE

First published 2011

Vision and mission .............................................................. 24

1.3 Approaches to strategy ............................................................ 47

1.1 Organisational strategy

The long term direction: Organisations usually put strategies in

Scope of an organisations activities: Private sector organisations will

Advantage for the organisation over their competition: For public

Johnson, G. Whittington, R. and Scholes, K. (2007: 3) Exploring Strategy

Strategic fit with the business environment: An organisations

Organisations resources and competences: Whether the

The values and expectations of stakeholders: The views of powerful

We will pick up on these issues in more detail, throughout the module.

an organisations strategic capabilities, resources and competences

strategic purpose, such as their vision and mission

culture of an individual industry or country, such as the public sector

2) Choice involves the alternative strategic options including both

Johnson, G. Whittington, R. and Scholes, K. (2011) Exploring Strategy Text

Elements of this rational model will be returned to throughout this

1.1.2 Corporate strategy

Johnson, G. Whittington, R. and Scholes, K. (2011: page 7) Exploring

Johnson, G. Whittington, R. and Scholes, K. (2011) Exploring Strategy Text

of higher-strategic goals such as achieving efficiencies or providing

1.2 Influences on strategy

Johnson, G. Whittington, R. and Scholes, K. (2011: page 119) Exploring

conflicting expectations. Indeed, public sector organisations tend to

strategic health authority

primary care trusts/clinical commissioning groups

service users (e.g. patients and visitors)

local and voluntary organisations

trust staff (administrators, consultants, nurses, porters etc)

Of course, some stakeholders have more influence than others such as

public attention. However, consultation may result in unplanned

PCS union members begin strike

The aim of private sector organisations is to produce something of value

Pursuing the public good consciously, as an end in itself, rather

Addressing market failure.

Promoting ethical values, notably equality.

It could also be taken to mean that value is not only experienced

do things differently to commercial broadcasters, which are subject to somewhat

Because theyre worth it

potential tenant. Of course, there is a strong case for increasing

above or by the pressures exerted through quasi-markets. It fails to

The value of everything

as a Strategy Unit paper, published in 2002 and revised in 2004.

example, recently asked what would happen if a Conservative public

some hard-headed numbers rather than this subjective stuff, there is a

WCED (1987: 43) cited by Elliott, J. A. (2006: 7) An Introduction to

Independent Regulator of NHS Foundation Trusts, assesses whether an

Competition within NHS benefits hospitals

Despite these examples of competition in the public sector, it is perhaps

The organisations vision which is further discussed later in this

The organisations main intentions and aspirations, which are often

A description of the main activities of the organisation, making it

Key values held by the organisation to reflect the various

The mission must be linked with the organisations strategy as well as

Johnson, G. Whittington, R. and Scholes, K. (2011) Exploring Strategy

To sell an organisation to its customers. In public sector

To set a rallying point for staff in a complex and changing

To drive change, especially where transformational change is

To direct action, when set by a powerful external stakeholder, and

However, devising an appropriate and helpful mission statement can be

All organisations will have a mission, or over-riding purpose, although

CIPFA (2010) Draft Development Strategy to 2015 member consultation.