10.4 - Problems with strategy

• It is critical that managers maintain a strong sense of strategic direction.
• Types of strategy implementation:

  • Planned strategies are strategies which are planned by managers and leaders and are purposefully implemented.
  • Emergent strategies are strategies which develop overtime but were not planned or implemented purposefully.
• Strategic drift

  • Strategic drift occurs when a business fails to respond to changes in the external environment, including customer demands, and therefore no longer offers the products and services demanded by customers.
• Overcoming strategic drift

  • In some cases, managers and leaders may not respond to changes in the market as they believe that changes will eventually reverse, but often this is not the case and many businesses have battled survival because of strategic drift. Businesses will need to make a transformational change or their failure to respond to market changes may otherwise become fatal.
• Divorce Between Ownership and Control and Contingency Plans

  Strategic problems occur when ownership and management is separated.
• When the owner is the manager

  When businesses operate with sole trader status, the owner and manager is often the same individual. In limited companies, the owners and managers can be separate groups of individuals as owners, or shareholders, appoint a board of directors to manage the company on their behalf, especially in Public Limited Companies (PLC) like Morrisons and Tesco.
• Disadvantages of divorce of ownership and control

  • Owners, or shareholders, may be focused on shareholder return and the maximisation of dividends whereas managers and directors may wish to invest profit in the long-term growth of the business; this creates conflict.
• Corporate governance

  • Corporate governance is the process of monitoring the decisions made by managers to ensure shareholder interests are considered.
• Contingency planning

  • Contingency planning refers to the process of managers and leaders planning for events which, if happened, would have a potentially serious impact on the business’ success.
• Advantages and disadvantages of contingency planning

  • Contingency plans can prepare a business for unlikely but potentially serious events.
  • Contingency plans can waste resources as plans may never be needed but have still been produced.
• Strategic decision-making is difficult because it is unfamiliar.
• Strategic drift = strategy no longer matches with the environment in which it operates.
• Reasons for strategic drift:

  • failure to identify and react to changes
  • lack of resources to change quickly
  • stakeholders may resist change
  • strategy develops incrementally, not change fast enough to keep up with external environment
• Difficulties of strategic decision making:

  • major decisions involving large degree of risk and uncertainty
  • complex and stressful (affect loads of people and businesses, expensive)
  • never have made the exact same decision before
  • flawed as will be influenced by managers own experiences and perspectives
• Why do strategic decisions go wrong:

  • managers set the wrong objectives or targets
  • data not easily available (unfamiliar decisions)
  • data may be badly analysed
  • implementation can go wrong (resistance or delays)
  • progress of plan is misread
• Benefits of contingency planning:

  • ready and able to react quickly
  • staff trained and more effective than if didn't have a plan
• Drawbacks of contingency planning:

  • waste of resources because scenarios may never happen
  • cannot plan for every eventuality
• Benefits of strategic planning:

  • bases plans on data, avoiding irrational and bad decisions
  • can provide a strategy that sets out for managers what the business is doing and how to do it
• Drawbacks of strategic planning:

  • environment can change so fast, plans need reviewing regularly and at times a complete overhaul
  • strategy evolves over time and is the result of a series of decisions
  • level of detail in strategic plan may need to be reviewed - due to pace of change may be little value in a lot of detail
• Corporate governance - refers to systems and processes in place to monitor and control how a business is run.
• Businesses are advised to have 'non executive' directors to have 'outside eyes' on what they are doing to ensure managers are acting in the best interests of the owners.
• Divorce between ownership and control - owners do not control the day-to-day decisions being made.
• To avoid managers pursuing own interests instead of owners interests, it is common to make managers shareholders so that they focus decisions on the share price and the dividends.