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ACCA
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Paper P3
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Business Analysis
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Essential Text
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British library cataloguinginpublication data
A catalogue record for this book is available from the British Library.
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© Kaplan Financial Limited, 2014
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Published by:
Kaplan Publishing UK
Unit 2 The Business Centre
Molly Millars Lane
Wokingham
Berkshire
RG41 2QZ
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The text in this material and any others made available by any Kaplan Group company does not
amount to advice on a particular matter and should not be taken as such. No reliance should be
placed on the content as the basis for any investment or other decision or in connection with any
advice given to third parties. Please consult your appropriate professional adviser as necessary.
Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any
person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or
otherwise arising in relation to the use of such materials.
Printed and bound in Great Britain
Acknowledgements
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We are grateful to the Association of Chartered Certified Accountants and the Chartered Institute of
Management Accountants for permission to reproduce past examination questions. The answers
have been prepared by Kaplan Publishing.
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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or
otherwise, without the prior written permission of Kaplan Publishing.
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Contents
Page
The nature of strategic business analysis
Chapter 2
The environment and competitive forces
Chapter 3
Internal resources, capabilities and
competences
Chapter 4
Stakeholders, governance and ethics
Chapter 5
Strategies for competitive advantage
75
Chapter 6
Other elements of strategic choice
97
Chapter 7
Methods of strategic development
109
Chapter 8
Organisational structure
125
Chapter 9
Business process change
141
Chapter 10
The role of information technology
159
Chapter 11
Marketing
197
Chapter 12
Project management I – The business case
Chapter 13
Project management II – Managing the project to 239
its conclusion
Chapter 14
Financial analysis
253
Chapter 15
Strategy and people
299
Chapter 16
Strategic development and managing strategic 321
change
Chapter 17
Questions & Answers
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Chapter 1
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63
219
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Introduction
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Paper Introduction
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How to Use the Materials
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Introduction
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These Kaplan Publishing learning materials have been
carefully designed to make your learning experience as easy
as possible and to give you the best chances of success in
your examinations.
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The product range contains a number of features to help you
in the study process. They include:
(1) Detailed study guide and syllabus objectives
(2) Description of the examination
(3) Study skills and revision guidance
(5) Question practice
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(4) Complete text or essential text
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The sections on the study guide, the syllabus objectives, the
examination and study skills should all be read before you
commence your studies. They are designed to familiarise
you with the nature and content of the examination and give
you tips on how to best to approach your learning.
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The complete text or essential text comprises the main
learning materials and gives guidance as to the importance
of topics and where other related resources can be found.
Each chapter includes:
•
The learning objectives contained in each chapter,
which have been carefully mapped to the examining
body's own syllabus learning objectives or outcomes.
You should use these to check you have a clear
understanding of all the topics on which you might be
assessed in the examination.
•
The chapter diagram provides a visual reference for
the content in the chapter, giving an overview of the
topics and how they link together.
•
The content for each topic area commences with a
brief explanation or definition to put the topic into context
before covering the topic in detail. You should follow
your studying of the content with a review of the
illustration/s. These are worked examples which will help
you to understand better how to apply the content for the
topic.
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Test your understanding sections provide an
opportunity to assess your understanding of the key
topics by applying what you have learned to short
questions. Answers can be found at the back of each
chapter.
•
Summary diagrams complete each chapter to show
the important links between topics and the overall
content of the paper. These diagrams should be used to
check that you have covered and understood the core
topics before moving on.
•
Question practice is provided at the back of each text.
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Quality and accuracy are of the upmost importance to us so
if you spot an error in any of our products, please send an
email to with full details, or
follow the link to the feedback form in MyKaplan.
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Our Quality Coordinator will work with our technical team to
verify the error and take action to ensure it is corrected in
future editions.
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Icon Explanations
Definition – Key definitions that you will need to learn from
the core content.
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Key Point – Identifies topics which are key to success and
are often examined.
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New – Identifies topics that are brand new in papers that
build on, and therefore also contain, learning covered in
earlier papers.
Expandable Text – Expandable text provides you with
additional information about a topic area and may help you
gain a better understanding of the core content. Essential
text users can access this additional content online (read it
where you need further guidance or skip over when you are
happy with the topic)
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Test Your Understanding – Exercises for you to complete
to ensure that you have understood the topics just learned.
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Illustration – Worked examples help you understand the
core content better.
Tricky topic – When reviewing these areas care should be
taken and all illustrations and test your understanding
exercises should be completed to ensure that the topic is
understood.
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Introduction
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Tutorial note – Included to explain some of the technical
points in more detail.
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Footsteps – Helpful tutor tips.
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For more details about the syllabus and the format of your
exam, please see your Complete Text or go online.
Online subscribers
Objectives of the syllabus
Core areas of the syllabus
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Paper background
Syllabus objectives and chapter references
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The examination
Paperbased examination tips
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Study skills and revision guidance
Preparing to study
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Effective studying
Three ways of taking notes
Revision
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Further reading
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You can find further reading and technical articles under the
student section of ACCA's website.
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The nature of strategic
business analysis
Chapter learning objectives
Upon completion of this chapter you will be able to:
describe the common vocabulary of strategic management and
why strategic management is important
•
describe the different levels of strategic planning for a profit
seeking and a notforprofit organisation
•
describe the JSW model for both profitseeking and notfor
profitseeking organisations
•
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describe the JS lenses (strategy as design, experience, ideas)
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explore the scope of business analysis and its relationship to
strategic management.
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1 The nature of strategic decisions
This chapter explains what is meant by strategic planning and some of the
different approaches that are taken to achieve strategic goals. By the end of
the chapter you should be familiar with many of the common terms in the
strategic vocabulary.
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Strategic planning
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‘Strategic planning’ can also be known as ‘longterm planning’ or ‘corporate
planning’. Those alternative names give some insight into the nature of
strategic planning. It:
considers the longer term (think of a timehorizon of about five years or
beyond)
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considers the whole organisation.
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Other characteristics of strategic planning are that:
•
•
•
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it gives direction to the whole organisation, and integrates its activities
it considers all stakeholders
it looks at how to gain a sustainable competitive advantage
it relates the organisation, its resources and competences to its
environment.
‘Strategy is a pattern of activities that seeks to achieve the objectives of the
organisation and adapt its scope, resources and operations to
environmental changes in the long term.’
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There is no universally accepted definition of strategy, and the word is used
in different contexts to mean different things. The following definition is as
useful as any.
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Why bother?
Advantages
Disadvantages
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Studies show that companies that plan are more successful than those that
do not. Strategic planning can have the following potential advantages:
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forces organisations to
look ahead
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can be time consuming and
expensive
•
improved fit with the
environment
•
may be difficult in rapidly changing
markets
•
better use of resources
•
can become a straightjacket
•
provides a direction/vision •
•
helps monitor progress
•
can become bureaucratic
•
ensures goal congruence
•
is less relevant in a crisis
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some unplanned for opportunities
may be missed
there are long lead times
the business needs to be turned around
there is high capital expenditure
many stakeholders are affected.
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Strategic planning is particularly important when:
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Illustration of the importance of strategic planning
Test your understanding 1
How important is strategic planning likely to be to the following
organisations?
(a) A health service.
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(b) A small building contractor.
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2 The rational ‘top down’ approach to strategic planning
The traditional approach
strategic choice
strategic implementation (or strategy into action).
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strategic analysis (examination of the current strategic position)
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•
•
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This approach breaks down the process of strategic planning into three
distinct steps:
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This can be represented in the diagram on the following page. Broadly,
information about the organisation and its environment is collected and
rational decisions are made about future courses of action.
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A modern adaptation
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The Johnson, Scholes and Whittington (JSW) model of strategic planning is
a modern development of the rational planning model. It consists of the three
elements already discussed (analysis, choice, implementation) but instead
of presenting these linearly, it recognises interdependencies. For example,
it might only be at the strategy into action (implementation) stage that an
organisation discovers something that sheds light on its strategic position.
The other key difference is that Johnson, Scholes and Whittington argue that
strategic planning can begin at any point. For example, firms might decide
that they will launch an internet sales division without first carrying out any
strategic analysis or choosing how the new strategy might compete. The
examiner believes that this is a key exam model and the bulk of the syllabus
is built around it.
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The strategic position/analysis
Assessing the strategic position consists of analysing:
the environment (competitors, markets, regulations, discoveries etc.
Opportunities and threats)
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the strategic capability of the organisation (resources, competences.
Strengths and weaknesses)
•
•
the culture, beliefs and assumptions of the organisation
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the expectation and power of stakeholders (what do the shareholders
want? Will employees cooperate?).
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The aims of strategic analysis
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Strategic choice
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Strategic choice follows strategic analysis and is based upon the following
three elements.
Generation of strategic options, e.g. growth, acquisition, diversification
or concentration.
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Evaluation of the options to assess their relative merits and feasibility.
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Selection of the strategy or option that the organisation will pursue.
There could be more than one strategy chosen but there is a chance of
an inherent danger or disadvantage to any choice made. Although there
are techniques for evaluating specific options, the selection is often
subjective and likely to be influenced by the values of managers and
other groups with an interest in the organisation.
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In addition to deciding the scope and direction of an organisation, choices
also need to be made about how to achieve the goal. Broadly, there are two
ways in which a strategy can be pursued:
•
•
internal development (organic growth)
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external development – merger/acquisition, JV, franchising/licensing.
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The generation of strategic options
Strategy into action/implementation
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Implementing a strategy has three elements.
Organising/structuring. For example, should the organisation be split
into European, US and Asian divisions? How autonomous should
divisions be?
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Enabling an organisation’s resources should support the chosen
strategy. For example, appropriate human resources and fixed assets
need to be acquired.
•
Managing change. Most strategic planning and implementation will
involve change, so managing change, in particular employees’ fears
and resistance, is crucial.
The implementation process
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Illustration 1 – The JSW model of strategic planning
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Illustration – Johnson, Scholes and Whittington model of
strategic planning
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A fullprice airline is considering setting up a ‘no frills’, lowfare
subsidiary. The strategic planning process would include the following
elements.
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Strategic position: competitor action, oil price forecasts, passenger
volume forecasts, availability of cheap landing rights, public concern for
environmental damage, effect on the main brand.
Strategic choices: which routes to launch? Set up a service from
scratch or buy an existing cheap airline? Which planes to use, what on
board services to offer?
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Strategic implementation: how autonomous should the new airline be?
How to recruit and train staff? Implementation of the internet booking
system. Acquisition of aircraft. Obtaining landing slots.
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A health provider has only large, edge of town, hospitals. It is
considering setting up additional small city centre clinics capable of
treating lessserious day cases.
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Give examples of what the provider should consider under the headings
of strategic position, strategic choices and strategic implementation.
3 Alternative approaches
Emergent strategies
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The research of Mintzberg (1987) suggests that few of the strategies
followed by organisations in the real world are as consciously planned as
the approaches above suggest.
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He believes this to be an unrealistic view of strategic planning, believing
instead that strategies evolve over time (emerge) rather than result from an
indepth analysis of every aspect of the environment and an impartial
evaluation of every possible alternative.
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Incrementalism
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Lindblom did not believe in the rational model to decision making as he
suggested that in the real world it was not used, citing the following reasons.
Strategic Managers do not evaluate all the possible options open to
them but choose between relatively few alternatives.
•
It does not normally involve an autonomous strategic planning team that
impartially sifts alternative options before choosing the best solution.
•
Strategy making tends to involve smallscale extensions of past policy –
‘incrementals’ rather than radical shifts following a comprehensive
search.
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Freewheeling opportunism
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Lindblom believed that strategy making involving small scale extensions of
past practices would be more successful as it was likely to be more
acceptable as consultation, compromise and accommodation were built
into the process. He believed that comprehensive rational planning was
impossible and likely to result in disaster if actively pursued.
Freewheeling opportunists do not like planning. They prefer to see and
grab opportunities as they arise.
•
Intellectually, this is justified by saying that planning takes too much time
and is too constraining. Probably, the approach is adopted more for
psychological reasons: some people simply do not like planning.
•
Often such people are entrepreneurs who enjoy taking risks and the
excitement of setting up new ventures. However, once the ventures are
up and running, the owners lose interest in the daytoday repetitive
administration needed to run a business.
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Test your understanding 3
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McNamee states that ‘strategic management ……… is considered
to be that type of management through which an organisation
tries to obtain a good fit with its environment’.
Management Accounting – Strategic Planning and Marketing,
McNamee
There are many successful organisations that do not undertake strategic
planning. This approach has been characterised as ‘reactive’ or
sometimes ‘freewheeling opportunism’.
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This approach has been characterised as ‘proactive’.
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Required:
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Explain the essential characteristics of the two approaches (strategic
planning and freewheeling opportunism) mentioned above. What are the
advantages and disadvantages of the two approaches? Explain in what
circumstances you would recommend an organisation to adopt each
approach.
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Levels of strategic planning
Test your understanding 4
A fullservice airline is making the following decisions.
(a) Should a ‘nofrills’, lowfare subsidiary be set up?
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(b) If it is set up, how should cabin staff be recruited?
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Are these likely to be corporate, business or operational decisions?
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Strategic management in different contexts
4 The strategy lenses
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Overall, strategy is likely to come from a variety of sources and a
combination of the above techniques. Johnson and Scholes suggest that
strategy will be formed through the coming together of three 'strategy lenses'
Strategy as design – essentially this is the same as the rational
planning model discussed earlier.
•
Strategy as experience – this is reflecting an element of
incrementalism.
•
Strategy as ideas – this reflects the emergent approach described
above.
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More details
Illustration 2 – The strategy lenses
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Strategies will combine all three elements though at different times and in
different environments one element might play a greater role than others.
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A university in a developing country wants to introduce new products via
the medium of elearning (where products are delivered over the internet
and students study at home). The country has poor infrastructure and a
cultural aversion to social mobility. But its government are planning (with
the help of international investment) a major investment in technology
over the next five years. This will allow over 75% of the country to have
access to high speed WiMax internet at very low costs.
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Let's look at how the university's strategy might develop:
Strategy as design
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The environmental changes that the university is experiencing are
significant and it will be important that the university react to these.
Through the use of environmental analysis in combination with resource
analysis etc. the design process will begin. It will then move on to
strategic choices such as the decision to move onto to elearning
product development.
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The design will be developed logically with carefully planned steps.
Middle and lower management will play a role in the implementation of
the strategy and it will have clear goals and objectives.
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Strategy as experience
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But the strategy is likely to be adapted over time, possibly due to the
influence of all levels of management. They will have clear takenfor
granted assumptions about how strategy should proceed, based mainly
on what has worked and not worked in the past. They may alter the
detailed plans due to their own ideas about what will work and what
won't.
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But the strategy will be added to as well from these experiences. For
example, the middle line managers might know from past experience
that when students study at home they require a higher level of service in
areas such as tutor feedback, exam marking and material delivery. This
might lead to the strategy to be adapted to incorporate plans such as
dedicated support staff etc. and a deliberate choice to focus on a more
differentiated service from rivals who might launch low cost alternatives.
Strategy as ideas
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The university's environment is not static and it will continue to evolve. A
five year plan cannot therefore be static and it also should evolve as the
environment evolves.
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For example, if telecommunications infrastructure were to grow as other
technologies grow it may well be that citizens of the country might begin
to own mobile 'smartphones' (especially those in the university's target
age group). This might provide an idea for providing some product
aspects (such as mini exam questions) as mobile phone applications.
This is unlikely to be part of the original strategic design, but as such
ideas arise they will be built into the strategy over time.
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Further illustration of the strategic lenses
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Relational diagram of the syllabus
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5 Chapter summary
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Test your understanding answers
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Test your understanding 1
(a) Health service
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Strategic planning is vital. Hospitals are hugely expensive and take
years to plan and build and their provision must be closely aligned
with population trends and treatment advances. Training medical
staff is also a longterm process. If hospital and other health service
facilities are inadequate, many people will be adversely affected.
(b) A small building contractor
Test your understanding 2
Suggestions are:
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Relatively little longterm planning is needed. If the builder buys and
develops land, then some planning will be needed to ensure that
land and planning permission can be acquired. Otherwise, many
builders work from job to job using a high proportion of sub
contractors.
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Strategic position: likely demand. Some type of cost/benefit analysis to
show that the strategy is worthwhile. Safety of patients being treated in
less wellresourced environments. Acceptability to patients.
Acceptability to staff.
Strategic choices: which illnesses to treat? Where should the clinics
be? How should the clinics be staffed? Opening hours?
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Strategic implementation: acquiring and fitting out clinics. Hiring
and/or transferring staff. Publicity, so that patients know where and when
to go. Liaison with general practitioners and the main hospitals.
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Test your understanding 3
Strategic planning
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This is a formal planning process that has clearly defined objectives,
which will have been agreed by its stakeholders. Strategic planning
operates within a logical set of procedures, which give it an easily
understood structure.
Strategic planning advantages:
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Strategic planning is a longterm planning process with a time horizon of
several years. It relates to the whole undertaking and recognises that an
organisation is an open system continuously interacting with its external
environment.
It sets out a clear direction for the organisation to move towards.
This provides a vision for the future.
•
•
•
It makes managers look ahead, think ahead and be proactive.
•
It is a structured method of planning, which employees and
managers can understand and put into practice.
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Future threats and opportunities can be identified and evaluated.
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It gives a perspective of future changes so the organisation can
adapt to them gradually.
It acts as a constraint on management ability to act.
Once set, achieving the plan becomes the goal. The real objectives
are lost sight of.
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•
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Some disadvantages of strategic planning include:
Freewheeling opportunism
This is the shortterm identification and exploitation of opportunities. It
only looks at the present and immediate future and uses an ad hoc
approach to management, reacting to situations as they develop.
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Freewheeling opportunism relies on the individual entrepreneurial skills
of the organisation’s proprietors or managers. It is informal and has no
set procedures that must be followed.
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Some of the advantages claimed by supporters of freewheeling
opportunism are:
It is flexible and can spontaneously adapt to a rapidly changing
situation.
•
It has none of the procedural constraints that formal strategic
planning has.
•
Decisions can be made rapidly and implemented, giving the
organisation a competitive advantage.
•
It supports and encourages an innovative culture in the organisation.
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Some disadvantages of freewheeling opportunism are:
•
There is no longterm vision for the future. Threats may not be seen
in advance.
•
•
In large undertakings, suboptimisation will occur when it is used.
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There are no clear objectives to work towards.
Recommended approach
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The method of planning used in an organisation will depend on many
factors, including:
•
•
•
•
Its size and leadership style.
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The organisation culture and structure.
The nature of its activities.
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The skills and aspirations of its managers.
Formal strategic planning should be used in larger organisations that are
established and have a degree of centralised control. It is unlikely that
organisations such as government institutions and public limited
companies, would survive without strategic planning in today’s
competitive world.
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Freewheeling opportunism might be justified in very small undertakings
in which responsibility for management is vested in the proprietors who
have considerable entrepreneurial skills, such as a business operating
in a turbulent, creative market.
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Test your understanding 4
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(a) There will be very high costs involved, careful planning is needed to
ensure that the cheap flights do not cannibalise the expensive
service. This is a decision that would be made by the main board
and is a corporate level strategy.
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(b) The nature of this decision is most likely to be a functional level
strategy. However, it will be important that the strategy is consistent
with whatever business level strategy is being followed. If the
company decide to offer a low level service as part of its business
level strategy, then it will be important that the recruitment of staff
supports this.
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The environment and
competitive forces
Chapter learning objectives
When you have completed this chapter you will be able to:
apply the PESTEL model in a scenario
•
using PESTEL, Porter’s five forces and other suitable models,
categorise environmental effects as opportunities or threats.
•
highlight how these external key drivers of change are likely to
affect the structure of a sector or a market
ria
•
•
•
•
•
•
apply Porter’s diamond in a scenario
describe what is meant by ‘convergence’ in industries
ate
evaluate an industry sector using Porter’s five forces model
analyse the influence of strategic groups
as
tud
ym
evaluate business forecasting techniques used to assess the
likely outcome of different business strategies
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