Anglia Ruskin University Ashcroft International Business School Department of Economics and Strategy

Module Guide

Strategic Management 2

Module Code: BUH1M14

Module Leader: Graham Webster

STRATEGIC MANAGEMENT 2 INTRODUCTION Welcome to the second Strategic Management module. Following our analysis and review of the strategic position in the Strategic Management 1, this module will look at the two specific areas of: • strategy formulation and choice, and • strategy implementation. So having explored, in Strategic Management 1, business organisations’ strategic environment and resource capability, we now go on to identify the appropriate strategic response to the environment and consider the implementation issues which will be faced as a consequence of that strategic response. LEARNING OBJECTIVES The aims and objectives of the module are to help you develop: • an ability to perceive the business organisation as a corporate entity, and

therefore to appreciate the importance of strategic decisions for all levels of the enterprise.

• an understanding of the need to consider issues which cut across the

functional boundaries of organisations and which require multi-disciplinary skills in their solution.

• an ability to analyse and solve problems by balancing the different aspects of

the business organisation against each other, enabling the evaluation of substantive issues and the understanding of the difficulty in implementing complex solutions.

• an appreciation of the need to analyse strategic positions and options and

their application within social, political and cultural contexts: in short, to combine analytical rigour with the reality of the process of management in examining strategic analysis, choice and implementation.

TEACHING STRATEGY This semester the module will continue with the pattern of one lecture and one tutorial each week. The tutorials will again be case based and will take the form of a number of questions which you will be required to prepare in advance. The tutorial questions for each week are included in this outline, together with the cases on which those questions are based. You will have some time in the tutorial

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to consider the questions, but you are required to read the cases prior to attending the tutorials. ASSESSMENT There will again be an open-book examination at the end of the semester. The format will remain the same, with the case being distributed in the lectures during Teaching Week 9. The examination will comprise a number of questions based on the case. LECTURE PROGRAMME Week 1 A Framework for Strategic Development and Choice Introduce and explore the framework developed by Johnson and Scholes for analysing and evaluating strategic development and choice Week 2 Generic Basis of Competition and the importance of collaboration Analysis of alternative approaches to competition. Porter’s Generic Strategies and Bowman’s Strategic Clock. The growing importance of collaboration in competitive industries (Lynch’s Four Links Model). Week 3 Directions and Methods of Strategic Development The alternative alternative strategic directions (e.g. Ansoff’s Matrix - new products, new markets) available to companies and the alternative methods of implementation (organic growth, strategic alliances and mergers and acquisitions). Week 4 International Expansion and Globalisation Strategies Understanding the difference between international expansion and globalisation. Analysing the benefits and problems of international expansion and globalisation.

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Week 5 Evaluating Strategic Choice Evaluating the suitability, feasibility and acceptability of strategy development proposals. Week 6 Financing Strategic Development Assessing the affordability of strategic proposals and evaluating alternative sources of finance. Week 7 Directed Reading Week Week 8 The Implementation Process - Resource Allocation, Planning and Control Issues Process of implementation. Allocation of resources. Conduct and control of strategic planning. Distribution of examination Case Study. Week 9 The Implementation Process – Organisational Structure and People Issues Role of organisational structure in strategy formulation and implementation. Key dimensions of organisational structure. Advantages and disadvantages of centralisation and decentralisation. The concept of empowerment. Identification of the principal structural forms. Week 10 The Implementation Process – Managing Change Issues in the management of change. The concept of learning and the management of resources. Forces for change and the change process. Resistance to change and how to overcome it.

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Week 11 Ethics and Corporate Responsibility Definition of business ethics. The ethical decision making process. Determinants of an organisational code of ethics. The conduct of commercial organisations in terms of ethics and notions of corporate responsibility. Week 12 Examination Revision Revision of key analytical models and concepts in preparation for the pre-seen Case Study examination. INDICATIVE READING The core text remains as in Strategic Management 1. That is, one of the following: Lynch R, Corporate Strategy, 3rd edition, Financial Times Prentice Hall, 2003. ISBN 0-273-65854-9 Johnson G, Scholes K and Whittington R: Exploring Corporate Strategy, Text and Cases, 7th edition, Financial Times Prentice Hall, 2005. ISBN 0-273-65112-9 Thompson & Strickland, Strategic Management Concepts and Cases, international edition, 13th edition, McGraw-Hill, 2002. ISBN 0-07-112132-3 There are many other texts of very high quality, which I would recommend to you as either an alternative core text or, as additional sources of reading. Foremost amongst these alternatives is: Thompson John B: Strategic Management, Awareness and Change, 4th Edition, Thomson Learning, 2001. ISBN 1-86152-587-7 Lloyd-Reason L & Wall S: Dimensions of Competitiveness: Issues and Policies, Edward Elgar, 2000. ISBN 1 84064 568 7 The ability to analyse financial matters is critical to strategic analysis and for those of you who find this area difficult, then I recommend the following:

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Ellis J & Williams D: Corporate Strategy and Financial Analysis, Financial Times Pitman Publishing, 1993. ISBN 0-273-03796-X Given the scope of the area of strategic management, I would strongly recommend that you read not only the relevant chapters in whichever text you choose to purchase, but also that you ‘read around' the subject in order to ensure that you have a sound grasp of the concepts involved. Graham Webster January 2006

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ANGLIA POLYTECHNIC UNIVERSITY MDF-1 Module Definition Form

1. Code: BUH1M14 2. Title: Strategic Management 2 3. Cost Centre: 4. Set: Business and

Economics 5. Module Author: Lester Lloyd-Reason, Graham Webster, Lawrence Britt

6. Scheme: UMS 7. Level: 3 8. Credits: 10 9. Module Type: Std 10. Study Hours: 100 11. Keywords Strategic management 12. Module to module relationships Type Status Indicative

Module Description (learning equivalent to the following)

1 2 3 4 13. Learning Outcomes: On successful completion of this module students will be able to: 1. Understand the strategic issues and choices facing business organisation, analysing the strategic options available. 2. Interpret findings and make recommendations as to the appropriateness of strategic options. 3. Understand the resource implications of the strategic management process. 4. Analyse the implementation issues facing the business organisation. 5. Understand the role of leadership and innovation in the management of change. 14. Catalogue Summary: This module is designed to build upon both knowledge gained elsewhere, and in the module Strategic Management 1, through the analysis of strategic options and the consideration of the strategy implementation issues. Following an analysis of the competitive environment, Strategic Management 11 is concerned with two central items. Firstly, an analysis of the strategic options available and an evaluation of those options to identify the most appropriate. That is, attempting to use organisational strength to exploit opportunities identified through competition analysis. Secondly, a consideration of the issues involved in the implementation of the chosen strategy with regard to resources, people and systems. That is, the main issues involved in the management of change. 15. Delivery Method: Class based Delivery Period Type: Semester

Number of Periods: 1 Start Delivery Period:

If the Delivery Method is Classroom Based please complete the following table: Activity Activity

Duration(Hrs) Comments Learning

Outcomes 1 Lectures 12 1-5 2 Tutorials 12 1-5 3 Student

managed learning

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Total Hours 100

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16. Assessment Details Assessment Mark Scheme: A1 Module Mark Scheme: M3 Blind

Marking Y/N

Ass

Type % Wt Agg

Y/N Qual Mark

Hrs Wk Due

Comments (including word count & LOs)

1 Exam 2 Exam week

Open book examination, 2 hours, by case study distributed in advance, outcomes 1-6

2 3 17. Indicative Outline Content: • Managing business organisations: mergers and acquisitions, diversification for shareholder value • Managing and controlling resources: operational aspects of strategy • Ensuring strategic control • The role of leadership, culture and ethics • Organisational structure • Management of change • Change and innovation: the motives for change • The role of leadership in change 18. Indicative Learning Resources Key Text Miller, A, ‘Strategic Management’, McGraw Hill, 1998, 3rd edition

Additional Reading/Resources Johnson, G & Scholes, K, ‘Text and Cases’, Prentice Hall, 1999, 5th edition 19. This module is a Pathway Module for the following Pathways: Pathway Code Title Compulsory/

Designated Restricted

BA (Hons) Business Management Compulsory BA (Hons) Business Studies Compulsory BA (Hons) Business Administration Compulsory BA (Hons) Human Resource Management Compulsory BA (Hons) Marketing Compulsory BA (Hons) Accounting and Finance Compulsory BA (Hons) International Financial Markets Compulsory BA (Hons) Business Economics Compulsory BA (Hons) Corporate Management Compulsory BA (Hons) International Management Compulsory BA (Hons) International Business Compulsory BA Combined (Hons) Business Compulsory BA Combined (Hons) Economics Compulsory BA (Hons) Business Systems Management Compulsory BA (Hons) Hospitality Management Compulsory

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BA (Hons) Sports Management Compulsory HNC/D Business Management Compulsory HNC/D Human Resource Management Compulsory HNC/D Marketing Compulsory HNC/D Accounting and Finance Compulsory Version Control (For Office Use) Version Number: Document type: For Validation/New/Amendment Date approved: HESA Subject Category: Approval Period: Module(s) replaced:

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TUTORIAL PROGRAM The Cases and other preparation materials, listed below and appearing on page 12 and subsequent pages, should be read prior to attending the relevant tutorial. Time will then be allowed in the tutorial for group discussion of the questions (Please note that Case Studies additional to those shown below, intended for either private or tutorial study, are listed on page 11 and appear from page 54 onwards. Tutorial Week 1 Review of Strategic Management I examination Tutorial Week 2 Sky-high strategies of Europe’s budget airlines Tutorial Week 3 Case Study - Generic Strategy Options Analysis: European Ice Cream Tutorial Week 4 Case Study – New Strategy Options at McDonalds Tutorial Week 5 Case Study - Championsoft Tutorial Week 6 Case Study - ALG Tutorial Week 7 Case Study - Tempco Tutorial Weeks 8 and 9 Exam-Type Case Study – Chaos in the Skies: the airline industry pre and post 9/11 Tutorial Week 10 Case Study - European football: viable strategy badly implemented? Or does the whole strategy need a rethink? Tutorial Week 11 Case Study - Strategic Planning at Canon with a co-operative corporate style Case Study - Informal Strategic Controls at Nestle Tutorial Week 12Case Study - How ABB empowered its managers and then reversed the process.

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ADDITIONAL CASE STUDIES FOR PRIVATE/TUTORIAL

STUDY Eurofreeze evaluates its strategy options:1 Eurofreeze evaluates its strategy options:2 Recorded Music on the Internet: only the beginning of the broadband revolution? Market-based strategies in global TV: exciting opportunities in a fast-expanding market Mobile revolution: Vodafone’s struggle to maintain success Corporate strategic leadership at Unilever Nokia – the risk of choosing between options Building a global media company at News Corporation

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TUTORIAL WEEK 1 Feedback on Strategic Management 1 Examination, January 2006 General The four questions in the examination are deliberately “open ended”. As a result there is (as in business strategy itself) likely to be a range of alternative answers to the questions. The outline marking scheme below does not attempt to predict this possible range of answers. Instead it presents a brief outline of broad themes that I would expect to be discussed in the majority of scripts. Appropriate credit must be awarded for alternative answers that are plausible and well argued. A key aim of the examination is to test students’ ability to select and apply appropriate analytical frameworks to the problems posed by the examination questions. Student awareness of such analytical frameworks is assumed knowledge which can, in any event, be copied from materials taken into the open book examination. Hence, marks should not be awarded for merely describing analytical frameworks. Although the case study presents limited information on the car industry and BMW, there is sufficient material in the case study for students to present answers that merit a comfortable pass mark. However, it is unlikely that students will be able to gain outstanding marks without presenting evidence of research undertaken during the 6-7 weeks that they were in possession of the pre-seen case study. Question 1 (40 marks) The most competitive markets are those where: entry is likely (barriers to entry are low) substitutes threaten either buyers or suppliers exert control participants are of similar size and markets are mature Potential Entrants Discussion, where appropriate, of: Economies of Scale Product Differentiation Capital Requirements Switching Costs Cost Disadvantages Independent of Scale Access to Distribution Channels Government Policy The industry to which Porter’s framework is being applied should be clarified. A segmentation of the car industry is hard to undertake because of lack of information. However, students should at least pose the question. Certainly they should recognise the need to look at the main segments in which BMW competes (i.e. high-performance saloon and sports cars). The industry is already crowded, attractive because of premium prices, with a number of players likely to attempt to push into the segment. Examples of this were VW with its models in its higher range – and perhaps soon after the date of the case study of prestige brands (Bentley and RR) with their “baby models”; and Jaguar with new lower cost models.

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Product Substitutes Discussion, where appropriate, of: Obsolescence Switching costs New processes Cost of extra specification to deter switching Impact on profit margin of falling/flat prices Competition for discretionary expenditure Doing without Key issue: ease of switch to substitutes Products competing for buyers’ disposable income in these segments ranged from other vehicles (such as motorbikes and boats) to leisure products (such as holidays) to properties (such as a larger house or a timeshare holiday home). This force was significant – it is unfavourable. Power of Buyers Discussion, where appropriate, of following factors which cite conditions in which buyer power is high: Buyers are concentrated and few of them Suppliers product is undifferentiated Backward integration possible for buyers Suppliers price is small relative to buyers total costs The power of individual buyers was very limited, as they had little bargaining power. In that respect, there was no threat. However, and especially in the high performance/executive saloons range, fleet owners and car rental companies were powerful enough to exercise pressure on profitability. Power of Suppliers Discussion, where appropriate, of following factors which cite conditions in which supplier power is high: There are only a few suppliers There are no substitutes for suppliers product Suppliers prices form a large part of buyers total costs Supplier can vertically integrate forward and undertake value-added process of buyers Suppliers had little power. The attempt by some to differentiate their products by supplying “systems” as opposed to parts (egg the whole dashboard rather than just some of the instrumentation) had given them little power as their products were custom made and thus unsuitable for other buyers. In addition, car assembly companies are capable of backwards integration into suppliers. Competitive Rivalry Discussion, where appropriate, of following factors which cite conditions in which competitive rivalry is high: Relative size of competitors is similar Market growth is slow It is difficult to differentiate Exit costs are high Rivalry was fierce. The industry was in the mature stage, with no growth and little scope for differentiation other than branding (“quality” was not an option, but a requirement).

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Exit was difficult, given the high asset intensity of the industry. In these conditions, competition tended to be price based, this depressing profitability. Other issues Although not explicitly required by the question, better candidates may well critique Porter as a framework for evaluating the competitive environment. In particular they may discuss issues of globalisation and company cooperation, factors not addressed by Porter’s Five Forces. Question 2 (20 marks) Frameworks that may be used to help answer this question include Emery and Trist, PEST (and its various derivatives), Lynch’s Four Links Model, the BCG Matrix, Life Cycle Analysis, Porter’s National Diamond, and (as discussed in detail in Question 1) Porter’s Five Forces. Although information in the case is limited, effective application of the above and other frameworks is likely to lead to the following points: The industry was in a mature stage and thus fiercely competitive, mostly on the basis of price given the limited scope for differentiation The industry, characterised by global convergence (driven by technology push and market pull) was consolidating rapidly in order to gain economies of scale and of scope. The above process, which also included many suppliers, was accelerating the process of globalisation. A major characteristic of the car market was the trend towards customisation, implemented on the back of a few major “platforms”. This trend was driven by the social and economic conditions of the market and made possible by technological developments, especially in IT. Because the car industry was mature, differentiation by quality was hard to achieve and branding was a major competitive tool. Question 3 (10 marks) Students should explain their understanding/interpretation of the phrase “critical success factors”. This understanding/interpretation should be consistent with “….those factors in the industry environment that must be matched by industry-participants’ resource capability in order to ensure participants’ survival/success in the market place. Students citation of critical success factors (CSFs) should be consistent with their analysis in questions 1 & 2.. For example, if a student cites a CSF as being that “….all industry participants should pursue a predominantly emergent style of strategic management”, then this conclusion should stem from appropriate evidence presented in questions 1 & 2. (e.g. the industry environment, in Emery and Trist terms, is complex, dynamic and therefore cannot be predicted. Therefore a predominantly prescriptive style of strategic management is unlikely to work well). Other CSFs might include:

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Sound management of the value chain and value system, through vertical integration and/or effective cooperative links, to generate a high perceived value for buyers.

Effective distribution network.

A strong brand that buyers associate withy quality, prestige and lifestyle.

Sufficient size to achieve the necessary economies of scale and to deter corporate predators.

Question 4 (30 marks) This question requires students to initially demonstrate awareness of the concept of sustainable competitive advantage. Such discussion is likely to include reference to:

Sustainable competitive advantage Identifying, developing and taking advantage of enclaves in which preservable business advantage can be achieved and where superior profits can be earned Types of Resources Threshold resources: needed for existence as a provider to any market segment. Needs improvement to stay in business Unique resources: resources which critically underpin core competencies and sustainable competitive advantage

Core Competencies Activities or processes that critically underpin an organization’s competitive advantage and its ability to outperform competitors Activities or processes that enable companies to take full advantage of market opportunities presented by customers. Activities or processes that enable companies to protect themselves against market threats posed by competitors The competences, if robust (difficult to imitate) may underpin Sustainable Competitive Advantage

Kay’s Sources of Sustainable Competitive Advantage

Architecture Reputation Innovation

Kay’s Tests of Sustainable Competitive Advantage Is advantage sufficiently significant to make a difference Is advantage sustainable against environmental and competitor attack Is advantage recognisable and linked to customer benefits

The question also requires analysis/evaluation of BMW’s resource capability using such techniques/frameworks as a resource audit, value chain/system, IT frameworks, culture frameworks, leadership/management frameworks and financial health frameworks (very little scope for latter). The best way to assess whether or not BMW has the strategic capability to compete in its market segments is to compare its strategic resource capability against industry CSFs. For example, for the four CSFs mentioned in question 3, the following points may be made:

Sound management of the value chain and value system, through vertical integration and/or effective cooperative links, to generate a high perceived value for buyers.

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BMW achieved this by controlling most of the activities in the value chain, to ensure the level of quality that buyers expect and to do so efficiently and effectively.

Effective distribution network. The control exercised by BMW on the distribution network contributed to its high global visibility and ensured top-quality customer service

A strong brand that buyers associate withy quality, prestige and lifestyle. The BMW brand was very strong, which customers associated with solid German engineering and craftsmanship. The product was prestigious and reassuringly expensive – it was perceived as a must by successful executives and by those aspiring to become so.

Sufficient size to achieve the necessary economies of scale and to deter corporate predators. BMW, even after the disposal of Rover, was large enough to achieve the desired economies of scale and scope to be competitive in the segments it competed in. However, its size made its independence vulnerable. In 2000, the Quandt family seemed to be determined to retain control of the group. Could this attitude change? What factors could influence it? Better students may well overlay Kay’s three tests of sustainable competitive advantage on the above analysis. Is the advantage, underpinned by resource capability: sufficiently significant to make a difference sustainable against environmental and competitor attack recognisable and linked to customer benefits Overall, BMW appeared to have a good strategic fit with the identified CSFs. Its continued growth in 2000, despite a generally stagnant car market, testified to that. However, following the failure of the Rover venture, there were fundamental concerns about the long-term independence of the group.

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