Mehrdad Baghai, Stephen Coley and David White in their book “The Alchemy of Growth” define the three horizons for growth. The book was based on a study of 40 growth companies, where the authors tried to identify how these successful companies approach and implement growth strategies. The key pattern that the authors identified is one of a step-by-step approach, a “staircase of initiatives.” Companies certainly keep an eye on the longer term strategy, but also simultaneously manage the near term. Each time a short term target is reached, a new capability is developed, a small acquisition is integrated, successful growers look at this as a platform for the next step. This may be a platform to continue to execute towards a strategic goal that had been set in the past. But it may also be a stage where new opportunities arise, that the company may not have been aware of Continue reading
Strategic Management Tools
Financial Evaluation of a Divestiture
A divestiture involves the sale of a division or plant or unit of one firm to another. From the seller’s perspective, it is a form of contraction; from the buyer’s point of view it represents expansion. Hence a divestiture is the obverse of a purchase. It is important to recognize that companies often achieve external expansion by acquiring an operating unit — plant, division, product line, subsidiary, etc — of another company. In such a case the seller generally believes that the value of the firm will be enhanced by converting the unit into cash or some other more productive asset. The selling of some of a firm’s assets is called divestiture. Unlike business failure, the motive for divestiture is often positive; to generate cash for expansion of other product lines, to get rid of a poorly performing operation, to streamline the corporation, or restructure the corporation’s business consistent with Continue reading
Porter’s Model of the Five Competitive Forces
The nature of competition in an industry in large part determines the content of strategy, especially business-level strategy. Based as it is on the fundamental economics of the industry, the very profit potential of an industry is determined by competitive interactions. Where these interactions are intense, profits tend to be whittled away by the activities of competing. Where they are mild and competitors appear docile, profit potential tends to be high. Yet a full understanding of the elements of competition within an industry is easy to overlook and often difficult to comprehend. Porter’s Competitive Forces Model is one of the most recognized framework for the analysis of business strategy. It is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on an understanding of industry structures and the way they change. Porter’s Competitive Forces Model Continue reading
Scenario Planning as a Strategic Management Tool
Formal scenario planning emerged during the Second World War, when it was used as a part of military strategy as countries prepared themselves for different contingencies. Since then, the use of scenario planning has become increasingly popular. Scenarios are tools for ordering one’s perception about alternative future environment in which today’s decision might be framed. In practice, scenarios resemble a set of stories, written or spoken, built around carefully constructed plots. These stories can express multiple perspectives on complex events, scenarios give meaning to these events. Scenarios are powerful planning tools precisely because the future is unpredictable. Unlike traditional forecasting or market research, scenarios present alternative images instead of extrapolating current trends from the present. Scenarios also embrace qualitative perspectives and the potential for sharp discontinuities that econometric models exclude. Consequently, creating scenarios requires decision-makers to question their broadest assumptions about the way the world works so that they can Continue reading
Big Hairy Audacious Goal (BHAG): A Tool for Goal Setting
Big Hairy Audacious Goal (BHAG) is the term coined by James C Collins and Jerry I Porras in their well known book “Built To Last”. Visionary Companies set Big Hairy Audacious Goals (BHAGs) that raise the bar and inspire people across all levels. According to Collins and Porras: “A true BHAG is clear and compelling, serves as a unifying focal point of effort…It has a clear finish line, so the organization can know when it has achieved the goal. It is tangible, energizing, highly focused. People get it right away; it takes little or no explanation.” BHAG is a goal, not a statement and it has a clear finish line. It’s a highly focused, tangible, and energizing goal. They typically take a 10- to 30-year commitment, but they are exciting, tangible and something everyone just “gets” without any further explanation. BHAGs only help an organization as long as it has Continue reading
Alignment – A Strategic Management Concept By Kaplan & Norton
Alignment is a key factor in effective implementation of strategy. Most large organizations are divided into business units which are out of sync and work at cross purposes. The challenge is to coordinate the activities of these units and leverage their skills for the benefit of the organization as a whole. Kaplan & Norton call this alignment on their book “Alignment: Using the Balanced Scorecard to Create Corporate Synergies.” “Most organizations attempt to create synergy, but in a fragmented, uncoordinated way,” Robert S. Kaplan and David P. Norton. By aligning the activities of its various business and support units, an organization can create additional sources of value in various ways. Financial synergies can be generated through centralized resource allocation and financial management. Value can also be created if corporate headquarters can operate internal capital markets better than external market mechanisms and share knowledge across business units, in a manner that Continue reading