―To see what is right and not
to do it is want of courage.‖
Confucius
Strategic Management
BU601A Class 11
Instructor: Steve Hummel, P. Eng.
Stephen J. Hummel, P. Eng.
1
"All that is necessary for the triumph of evil is that good
men do nothing."
Edmund Burke
Agenda
Strategic Management
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Final Exam
Articles
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Moral Muteness of Managers
The Ethical Mind
Corruption in International Business
Reputation Risk in the Global Art Market
Review
Stephen J. Hummel, P. Eng.
2
Final Exam Notes
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Strategic Management
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Use only information available in the case. Any information gathered from outside the case
will not be marked.
The exam is open book, you may bring in any paper documents or texts to help you to
arrive at an answer.
When answering the question above please ―convince me‖ with interlocked analysis.
Failure to use numerical analysis in terms of evaluating firm performance will result in an
exam failure.
The only documents marked are the exam booklets. Please do not insert any other paper
into the exam booklets as only the exam booklets will be marked. If you wish to use any
analysis that you may have done in preparation for this exam you must copy it on to the
exam booklets.
The only electronic allowed in the exam is a calculator.
No cell phones allowed unless you have made special arrangements with the professor. If
your cell phone rings please stop writing and hand in your paper as your exam is over.
Write legibly. If your work cannot be read it cannot be marked.
Point form is permissible. If you are going to use point form please ensure that your
analysis, conclusions, and recommendation flow in one continuous ―story‖.
The time available for the exam is 3 hours. Please use your time wisely.
12/7/2010
Moral Muteness of Managers
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Strategic Management
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Moral standards are often passed off as ―street smarts‖ or ―ways to succeed‖
Managers seldom discuss the ethical problems that they encounter
Nice model on pg. 75
Causes of moral muteness:
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Consequences of moral muteness:
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Threat to harmony
Threat to efficiency
Threat to image of power and effectiveness
Moral amnesia
Narrowed concept of morality
Moral stress
Neglect of abuses
Decreased authority of moral standards
How to make it work:
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Make it legitimate. i.e. ―academic freedom‖
Keep it focused, avoid distractions
Treat this issue as a ―long run‖ item, it requires patience and reflection to make it work
12/7/2010
The Ethical Mind
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Strategic Management
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Ethical orientation begins at home
The quality and behaviour of your peers impacts you
Exposure to ―leaders of character‖ can change your view
Threats to an ethical orientation:
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The quality of institutions
Adaptation to changing environments
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Temptation of greed in the absence of control systems
Unprincipled values of leading figures in firms
Failure to educate
―Good work‖
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4 M’s, Mission, Models, Mirror test (individual), Mirror test (professional)
12/7/2010
Corruption in International
Business
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Causal factors
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Strategic Management
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Types of corruption
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Interdependence of economic and political spheres
Petty; typically low level bureaucrats, things like taxes, regulations,
licensing, discretionary allocation of gov’t benefits
Grand; need high level officials for things like procurement of military
equipment, infrastructure projects, policy decisions
Influence peddling; things like campaign contributions
Real cost, makes everything more expensive
What is your reaction to the mini-cases reviewed in the reading?
12/7/2010
Reputation Risk in the Global
Art Market
Strategic Management
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This case focuses on reputation risk, ethics, and good
governance in international business. It allows the
student to explore the impact of culture and
perspective differences in an attempt to develop
good governance models.
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What are the considerations for companies deciding between a
course of action that is technically legal but raises ethical issues?
What are the cultural differences in this case?
How can firms operating internationally develop good governance
models that are culturally flexible?
How can companies who have received negative publicity repair
their reputations in the international market?
12/7/2010
International Ethical Options
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Imperialist approach
Strategic Management
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Relativist approach
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―When in Rome, do as the Romans do‖
Universalist approach
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Home country ethical code
Use global standards or rules of international law
Relationship-building approach
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Establish trust through building realtionships
12/7/2010
Repairing Reputations
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Strategic Management
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Communicating immediately to stakeholders
Acknowledging mistakes with genuine regret
Committing to finding a solution and making it
happen
Demonstrating co-operation with relevant authorities
Taking steps to ensure the same situation does not
happen again
Listening to your stakeholders
12/7/2010
Strategic Management
Final Exam
• Open book
• A case
• You are asked to solve a general
problem
• Ensure that your exam:
• is legible (if I cannot read it I cannot
mark it)
• Neat (use white space and titles)
How to spend your time
Strategic Management
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1 hour reading and collecting and
organizing data
1 hour analysing the data and drawing
conclusion
1 hour writing your exam
Hour 1: Reading the Case
Strategic Management
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Read it thoroughly
 Don’t rush. Take time and absorb the
details
 The case is designed to be written in less
than 3 hours, you have lots of time to read
slowly, it is not a long case
Make sure that you understand what you are
being asked to do!
 After all, you want to answer the right
question!
Hour 1: Collecting Your
Thoughts
Strategic Management
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Organize the data into models you
have learned
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Strategic components
Diamond E
Resource analysis
Organization analysis
Who are the key players and what are
their skills, preferences, and power?
Hints
Strategic Management
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DO NOT get “target-lock” at this point, only
develop “concerns and opportunities”
Collect all the numbers you can
Run the basic numbers so you understand
relationships
Street Smart Financial Analysis
Strategic Management
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Balance Sheet – snapshot of a company’s financial
position at a set point in time
Income Statement – reveals how well the company
performs financially over a set period of time
Cash Flow Statement – reveals how much cash the
company generated over a set period of time and
how it used that cash
What is happening over time?
Hour 2: Analysis of the
Material
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Strategic Management
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Performance and hence urgency for action
Implications from data laid out including
opportunities to pursue and constraints on
action
Assess the viability of the alternative
solutions, including tradeoffs
Select the appropriate alternative and flesh
out what has to be done to put it in place, and
what the results will be
Performance
Strategic Management
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Making $ or Not?
Increasing or decreasing profits?
Increasing or decreasing volume?
Employee turnover?
Customer retention?
Quality?
Urgency for Action
Strategic Management
Good
Anticipatory
Change
Reactive
Change
Strategic
Performance
Crisis
Change
Poor
Time
Rules to Analyze By!
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Strategic Management
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Always look at how a company performs over time, use several
statements over several time periods
Always understand how much money the principles have ―in the game‖
Look at the security and ranking of the debt
Understand if any rules have been broken!
Is the company being financed by suppliers?
Where does cost really come from?
Analyze the income statement as a percentage of sales dollar!
Cash is king!
Is the company being a bank?
How efficient is the company in managing money?
Is there any ―noise― in the balance sheet or income statement?
As volume increase what is happening to fixed costs?
Strategic Management
The Strategic Proposal As a Focusing Tool
•Strategic goals establish the performance priorities and expectations that
need to be evaluated in your environmental analysis
•Product market focus sets up a bounded environment for the analysis of
demand, competition, etc.
•A proposal’s value proposition defines a very tangible benchmark for
testing customer appeal and competitive differentiation
•The nature and structure of a proposal’s core activities provide a basis for
identifying the cost, control, and flexibility trade-offs that would be
sensitive to external trends and developments
•Again, think about this as it helps to focus your efforts!
The Profit Model As a Focusing Tool
•High fixed cost structures
Strategic Management
–Strong temptation to cut prices to capture volume, result is war!
•High variable cost structures
–Accuracy of assumptions for input costs are critical!
•High break-even points
–Carefully assess ability to achieve required market share position
•High up-front investment
–Market potential assessment and competitive assessment must be
very carefully done
• Inflexible investment structures
–Carefully explore the probabilities of external forces that would
lead to “worse case” scenarios
Examples of Models & Tools
vision, mission, values
frozen preferences
gap analysis
Strategic Management
MP
O
capabilities model
leverage points
str. change plan
R
resource gap analysis
Collis & Montgomery
tests
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S
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Porter framework
BEAM model
competitor profiles
concept of CA
profit/cost structure
demand forecasts
PEST
life cycle
E
components of
hard & soft goals
goal structure
concept of CA
product/market matrix
core activity diagrams
criterion of consistency
Day’s “5 Tests” of strategy
growth trap
emergent vs. deliberate
Diamond – E
Framework
Strategic Management
Management Preferences
Organization
Watch out!: Disruptive technologies
and Global influences
Strategy
Environment
Resources
Key: Coherence and Consistency between the elements.
Internal and External.
Strategic Tension
WANT
Management Preferences
Strategic Management
Individual
Strategic
Tension
CAN
Resource Capabilities
and Organization
Firm
NEED
Environment
Industry
Remember, there is always tension!
Diamond-E Keys
Strategic Management
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High consistency among the component variables will lead to
successful performance
The rub is that a strategy must satisfy internal and external
circumstances simultaneously
Always start with the strategy-environment linkage
Strategy-resources, management preferences, and organization
examine required versus existing
New strategies are developed as you move around the
framework so you begin all over again (think about implications
of engagement)
Note notion of strategic tension, Want-Need-Can, this must be
managed!
Environment Analysis
Strategic Management
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Identify the underlying industry economics and
drivers of profitability
Understand the industry value chain
Assess the attractiveness of the industry for future
investment
Identify the key success factors, what it takes to win
in the industry
Make preliminary assessments of how industry
analysis will impact strategic options
Now move on through the rest of the Diamond-E
Key Environment Models
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Porter’s 5 Forces – “Who has the Power?” & Industry Attractiveness
Strategic Management
• Porter’s Value Chain – “Where does the Profit lie” & “Are we doing the right/wrong
things?
• Game Theory – “We want to be the leader!”
• Prisoner’s Dilemma –”Indication of Game Theory!” & “Can we play the game
successfully?”
• PEST or STEEP (Environment) – “Forces have long lead time but can be surprised
by events”
• Scenario Planning – “Must use tool for PESTE to examine possible outcomes”
• New Economy – “Must use for disruptive technologies!”
• Global Industry – “Standard or specialized, what is best for us?”
• Globalization Potential – “Are the forces in our favour?”
• Stakeholder Analysis – “Can we balance their issues with what must be done?”
• BEAM – “How adaptive is our strategy to these forces?”
Identify & Evaluate The
Current Strategy
Strategic Management
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Bottom Line, is it good or bad or even exist at
all?
Where are the gaps?
What will happen in the future if we continue
with this strategy?
Decide on the need, nature, and urgency of
change!
Strategic Management
Forecast Performance
• As you forecast performance at this point you are assuming that
the business has the resources/capabilities to do as planned
• The question that you want to answer is will the strategic
proposal fulfill the goals
• Make sure that you draw conclusions about the likelihood of
achieving goals
• Identify and note the primary risks
• Careful about the assumptions with respect to both revenue
growth and cost containment
• Once you have a short list of acceptable proposals move to the
next step in the Diamond-E
Strategic Management
Defining the Right Time Horizon
• You should know this already from your size-up at
the performance assessment stage!
• Pace of external change
• Flexibility of commitment
• Implementation horizon
Minimizing the Risks of Focus
Strategic Management
• Challenge is to avoid strategic myopia
• Macro-environment scanning
– Essentially an issue seeking process, what will kill you?
• Identifying market intrusions
– Look for newcomers and technology, remember, watch
out for “the Hun out of the sun”
• Recycling
– Difficult to follow in real life, but do not recycle forever,
this results in paralysis, remember TRADE-OFF’S!
So What Does All This Mean
For Case Analysis?
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The smart move is to always:
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Strategic Management
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Draw a strategy triangle, look for fit and a clear value
proposition
Draw a Diamond-E, use the environment tools that are
applicable to the situation, populate the rest of it, examine
gaps, recycle as required
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Do a Porter 5-Forces to understand who has the power in the
industry & how attractive it is
Don’t use every environmental analysis tool, just those that fit
the situation and might give you meaningful information
Once you have a strategy test it with Day’s 5 tests
Make sure that you find a competitive advantage!
Do financials that are in line with environment and gaps in
the Diamond-E, always attempt to forecast future
performance based upon your recommendation, remember,
your job is to increase value for the firm!
No Plan Survives Contact with the Environment!
Strategic Management
Strategy is ultimately a pattern of
actions...
Unrealized
Strategy
Realized
Strategy
Intended
Strategy
Emergent
Strategy
…based on day-to-day decisions
and actions.
Remember Law of Nemisis!
So What Does This Mean?
Strategic Management
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Develop a strategy has a reasonable
degree of fault tolerance and/or
adaptability to the environment!
Is there a way out of ―Dodge City‖ if
the worst happens?
Creating a Change Plan
Strategic Management
Analysis of Starting Conditions
Urgency
Are you dealing with
anticipatory,
reactive, or crisis
change?
Organizational
Readiness
Who will be most
affected by the
proposed change?
How ready are they?
Personal
Readiness
How ready are you
to lead the change
process?
Creating a Change Plan
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Top 3 things that I need to do now
Strategic Management
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Who does it, by when, what resources,
how measure
Top 3 things that I need to do later
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Who does it, by when, what resources,
how measure
Strategic Management
Assessing Potential Priority Targets
Proactive
Resistors
Change
Agents
Bystanders
Defensive
Resistors
Actively
Opposed
Change
Agents in Waiting
Neutral
Commitment to Proposed Change
Strongly
Supportive
Hour 3: Write up your report
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Strategic Management
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Recommendation: tight and to the point
Support: justification of the problem and
the solution (#’s whenever possible!)
Plan of action (Gantt chart)
Projected results
Contingency plan
Any exhibits you consider appropriate
Cautions
Strategic Management
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Managers take actions that deliver
results
Strategic issues always have some
tension associated with them
Do not try to fix all the problems in the
business—focus on those related to the
problem as you have defined it
Summary Advice
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Strategic Management
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The goal is always to have a competitive advantage
―Stick to your knitting‖
Use common sense ―It is easier to slide on grease than gravel‖
Focus, focus, focus!
Do not forget financials!
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Tell me risk (i.e. Best Case/Worse Case financials)
Tell me how you are going to make it work
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Remember your job is to improve value……
An average strategy with brilliant execution trumps a brilliant strategy with
poor execution every time!
Seek an implementation plan that increases fit, the higher the order of fit,
the better the chance of succeeding
Pretend it is your money, what would you do?
―Follow the money‖
Convince me!
Thanks for a Great Term!
―Management
Strategic Management
is doing things
right;
leadership is
doing the right
things.‖
Peter F.
Drucker
Stephen J. Hummel, P. Eng
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