CHAPTER 1
THE STRATEGY PROCESS
Presented
By
Mr. Madzhiya H
Department of Finance and Investments
Faculty of Economics and Finance
CHAPTER OUTLINE
CHAPTER LEARNING OBJECTIVES
INTRODUCTION
REAL LIFE SCENARIOS
STRATEGIC MANAGEMENT
BUSINESS ECOSYSTEM
LEVEL OF STRATEGY
TYPE OF STRATEGY (MODEL)
APPROACH TO STRATEGY
ROLE OF MANAGEMENT ACCOUNTANT
Faculty of Economics and Finance
Department of Finance and Investments
CHAPTER LEARNING OBJECTIVES
Define strategy.
Explain the purpose of strategy.
Discuss the types and levels of strategy
Outline the strategy process.
Faculty of Economics and Finance
Department of Finance and Investments
INTRODUCTION
One of the most important questions in business and excluding non-profit
organisations, is why some organisations are successful and others struggle
or even fail.
What about Luck and intuition? Are they key to success of a business?
Can an organisation survive the volatile future? And How?
Faculty of Economics and Finance
Department of Finance and Investments
REAL LIFE SCENARIO
TV COMPANIES
• MultiChoice Group has reported a decline in subscribers, while investment ahead of a planned
relaunch of Showmax, coupled with foreign exchange losses in Nigeria, has stained its income
statement in red ink
• Not that long ago, the only way to enjoy new programmes was to wait patiently each week until
the next episode was broadcast.
NOKIA AND BLACKBERRY
• In 2000, Nokia was the best-selling mobile phone brand. With the arrival of the Apple iPhone and
other smart phones, Nokia quickly lost its dominance and is now a very small presence in the
phone market. Similarly, Blackberry was a very strong niche player in the business
communications market (its phones had a small keyboard and offered high security) with 2011
sales of about 50m units; 2016 sales were about 2m units.
• Both companies suffered from the march of technology including operating systems such as Ios
and Android. The new technologies allowed other companies to design and sell phones which
users found much more attractive.
Faculty of Economics and Finance
Department of Finance and Investments
REAL LIFE SCENARIO
Banking
• Johannesburg - African Bank Investments Ltd, which plummeted this week after
surprising investors with the need for more funding, is now counting on
shareholders or the government to stave off collapse.
Automative
• Volkswagen (VW), a German car company, admired for its engineering and
designs, had a fine reputation....until 2015 when the US Environmental Protection
Agency issued a notice claiming that VW had violated the Clean Air Act by
activating emissions controls only whilst vehicles were being tested.
• The company was also, arguably, slow to develop hybrid and electric vehicles and
may have lost ground there to other manufacturers
Faculty of Economics and Finance
Department of Finance and Investments
STRATEGIC MANAGEMENT
• Strategic management can be defined as a process whereby the internal
and external environments are analysed to identify strategic goals and to
develop strategies in line with the organisation’s vision and mission.
• Strategy is a common concept involving the process of analysing the
situation and then developing a strategy (plan) on how to outsmart your
opponent.
• According to CIMA strategy can be defined “A course of action, including
the specification of resources required, to achieve a specific objective”
• Fundamental to recognising what will work for a particular organisation is
understanding the ecosystem in which it exists
Faculty of Economics and Finance
Department of Finance and Investments
BUSINESS ECOSYSTEM
• An organisation’s ecosystem is made up of a network of organisations
including customers, suppliers, distributors, competitors, government
agencies etc. – involved in the delivery of a product or service.
• This can be via either cooperation (e.g. customers and suppliers) or
competition.
• The idea is that all components of an ecosystem impact on each other,
creating a relationship that is constantly evolving and within which each
organisation must be flexible and adaptable to survive
• Advances in technology and the increasing degree of globalisation have
made people question the best ways in which to do business. The concept
of A business ecosystem is thought to help organisations consider how to
succeed in an environment which is changing constantly and at great speed
Faculty of Economics and Finance
Department of Finance and Investments
THE IMPORTANCE OF A STRATEGY
• The following reasons can be provided:
– The entire organisation is involved in the strategy process.
– It helps the organisation not only to survive, but also to add value to
stakeholders.
– Strategy helps the organisation to develop a relationship with its
environment.
– An organisation can only develop a sustainable competitive advantage
through an appropriate strategy.
– Good corporate governance requires an effective strategic management
process to be in place.
Faculty of Economics and Finance
Department of Finance and Investments
LEVELS OF STRATEGY
Strategy can apply to different levels or parts of an organisation:
Corporate Strategy: Which businesses and markets should we be in?
• Involves acquisition & diversification
• Entering new industries
• Leaving existing industries
Business Strategy: How (develop a plan to be successful in the selected
markets)
• Focuses on the SBUs rather than the entire organization
• Achieve advantage over competitors
• Avoid competitive disadvantage
Faculty of Economics and Finance
Department of Finance and Investments
LEVELS OF STRATEGY
Functional Strategy: Day to day – Concerned with how resources,
people & processes are pulled together to form strategic architecture
• which will effectively deliver the overall strategic direction.
•
•
•
•
Human resource strategy
Marketing strategy
Digital strategy
Operations strategy
Faculty of Economics and Finance
Department of Finance and Investments
TYPES OF STRATEGY
• There are a number of different models that can be adopted. None
can be considered to be the ‘best’ approach – it simply depends on
which one each organisation feels is the most appropriate for their
needs
1. Rational Model
2. The Emergent Approach
3. Logical Incrementalism
4. Freewheeling Opportunism
Faculty of Economics and Finance
Department of Finance and Investments
RATIONAL MODEL
Faculty of Economics and Finance
Department of Finance and Investments
THE EMERGENT APPROACH
• Strategies are not always formally planned. In reality, strategies may evolve
in response to unexpected events that impact on the organisation
• Mintzberg argued that in a changing environment, the rational model is
often too slow and quickly becomes outdated.
• As an alternative, Mintzberg suggested that in reality, an emergent
approach to strategy development occurs, whereby strategy tends to
evolve rather than result from a logical, formal process
• A strategy may be tried and developed as it is implemented. If it fails a
different approach will be taken.
Faculty of Economics and Finance
Department of Finance and Investments
THE EMERGENT APPROACH
Faculty of Economics and Finance
Department of Finance and Investments
LOGICAL INCREMENTALISM
• This approach suggests that strategy tends to be a small-scale extension of
past policy, rather than radical change
• Incrementalism (initially developed by Lindblom) does not believe that the
rational model of decision-making is sensible and suggests that, in the real
world, it is rarely used. This because :
• Strategy is not usually decided by autonomous strategic planning teams that have
time to impartially sift all the information and possible options before deciding on
the optimal solution
• Instead, managers have to sift through the options themselves. Due to time and
knowledge constraints. This means that they usually only choose between relatively
few options. This is known as bounded rationality
• managers try to make small changes to what they know has worked well in the past.
Faculty of Economics and Finance
Department of Finance and Investments
FREEWHEELING OPPORTUNISM
• Freewheeling opportunism suggests that organisations should avoid formal
planning and instead simply take advantage of opportunities as they arise.
• Others find detailed planning anathema and that planning restricts the
freedom of action.
• Freewheeling opportunists will tend to justify their stands by claiming that
planning imposes restrictions on the development of their organisations
• Freewheeling opportunists can make decisions very quickly, but they might
not have investigated the facts fully and thought through the implications
Faculty of Economics and Finance
Department of Finance and Investments
Faculty of Economics and Finance
Department of Finance and Investments
PERSPECTIVES TO STRATEGIC PLANNING
While each aspect of strategic planning is important, firms may
prioritise the perspectives in different ways:
• A traditional approach – stakeholders
• The traditional approach starts by looking at stakeholders and their objectives
(e.g. increase EPS by 5% per annum). The emphasis is then on formulating
plans to achieve these objectives.
• A ‘market-led’ or ‘positioning’ approach
• The essence of strategic planning is then to ensure that the firm has a good
‘fit’ with its environment. If markets are expected to change, then the firm
needs to change too.
Faculty of Economics and Finance
Department of Finance and Investments
PERSPECTIVES TO STRATEGIC PLANNING
• A ‘resource-based’ or ‘competence-led’ approach
• Many firms who have found anticipating the environment to
be difficult have switched to a competence or resourcebased approach, where the emphasis of strategy is to look
at what the firm is good at – its core competences.
• Ideally these correlate to the areas that the firm has to be
good at in order to succeed in its chosen markets (critical
success factors or CSFs – see chapter 5 for more detail on
this area) and are also difficult for competitors to copy
Faculty of Economics and Finance
Department of Finance and Investments
Faculty of Economics and Finance
Department of Finance and Investments
THE ROLE OF THE MANAGEMENT ACCOUNTANT
CHARTERED MANAGEMENT ACCOUNTANTS: 'Help organisations
establish viable strategies and convert them into profit (in a commercial
context) or into value-for-money (in a not-for-profit context). To
achieve this they work as an integral part of multi-skilled management
teams In carrying out the:
•
•
•
•
•
Formulation of policy and setting of corporate objectives
Formulation of strategic plans derived from corporate objectives
Formulation of shorter-term operational plans
Acquisition and use of finance
Design of systems, recording of events and transactions and management of
information systems
Faculty of Economics and Finance
Department of Finance and Investments
STRATEGIC MANAGEMENT ACCOUNTING
• Strategic management accounting is a ‘form of management
accounting in which emphasis is placed on information which relates
to factors external to the entity, as well as non-financial information
and internally generated information.
• This indicates some key differences between strategic and traditional
management accountants
• External focus
• Forward-looking
Faculty of Economics and Finance
Department of Finance and Investments
END OF LESSON
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