Understanding Strategies

• MCS are tools for implementing strategies

• Strategies are plans to achieve organizational goals
• Strategies differ between organisations
• Controls should be specific to each strategy
• Real Test of an MCS:
• the behavior induced by a particular MCS is the desired/anticipated one?

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Goals
• Goals are long term, kept steady.
• Strategies are dynamic.
• Goals are generally set by the founder of the company
• Henry Ford, Alfred Sloan (GM Corp), Walt Disney, Kodak
• Typical Goal of a corporate: Profitability (ROI, ROA, Maximization of
shareholder wealth, earning only a reasonable return on the capital)
• Multi-stakeholder approach
• Focus on different components of the profit equation.
• Jack Welsh concentrates on revenues; Others might concentrate on Profits
• Profit could be absolute amount, or a % of revenue

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Goals: Maximizing Shareholder value
• Not universally accepted
• Henry Ford says not Maximum profits, but satisfactory profits

• Henry Ford's operating philosophy was satisfactory profit, not

maximum profit. He wrote, "I do not believe that we should make
such an awful profit on our cars. A reasonable profit is right, but not
too much. So it has been my policy to force the price of the car down
as fast as production would permit, and give the benefits to the users
and laborers—with resulting surprisingly enormous benefits to
ourselves.”

• Corporate’s profit goal is not at an excessive risk

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The Concept of Strategy
• Strategy describes the general direction in which an organisation
plans to move to attain its goals
• An organisation can have more than one strategies
• Strategy is developed by matching a corporate’s core competency to
the industry opportunities.
1) Conduct environmental analysis
2) Conduct Internal Analysis
3) Identify opportunities (and threats)
4) Identify core competencies (Strengths and weaknesses)
5) Fit internal competencies with external opportunities
6) Which results in Firm’s strategies

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Two Levels of Strategy
• Strategies are found at two levels
• Strategies for the whole organisation
• Strategies for the business units within the organisation
• Corporate Level:
• Is the business mix right? (Single/related/unrelated)
• What industries and subindustries to pursue?
• Business Unit Level
• What should be the mission of the business unit?
• How should the business unit compete to realise the mission (Low Cost,
Features, quality, return policy)

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 Two-Levels of Strategy
Strategy Level Key Strategic Issues Generic Strategic Options Who is involved?
Corporate Level Are we in the right mix of Single industry Corporate office
industries? Related diversification
What industries or subindustries Unrelated diversification
should we be in?
Business Unit Level What should be the mission of the Build Corporate office and
business unit? Hold Business Unit general
Harvest manager
Invest

How should the business unit Low Cost Business Unit general
compete to realise its mission? differentiation manager

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Corporate Level Strategy
• Single Industry Firms
• Unrelated Diversification
• Totally autonomous businesses in very different markets
• Related Diversification
• Sharing of core competencies across the business units
• Pictorial
• Degree of relatedness
• Degree of Diversification

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Business Unit Strategies
• Business Unit Mission
• BCG Model
• Build, Hold, Harvest, Divest
• Business Unit Competitive Advantage
• Industry Analysis
• Porter’s Five Forces Model
• Intensity of rivalry among existing competitors
• Bargaining Power of Customers
• Bargaining Power of Suppliers
• Threat from substitutes
• The threat of new entry

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Industry Analysis
• The more powerful the five forces are, ---------------
• Relative strength of the five forces leads to -------------------
• Understanding the nature of each force helps the firm to formulate
effective strategies

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Generic Competitive Advantage
• Low Cost
• Product Differentiation
• Value Chain Analysis
• Typical value Chain
• Product Development
• Manufacturing
• Marketing & Sales
• Services/Logistics
• Support Activities: Finance, HR and IT

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