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Technical test 2.docx

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Pat Lemieux

Set 1 1. According to the article “Evaluating Strategic Alternatives” and the discussions in class, please define and describe in details the tests that should be used to assess and rank strategic alternatives. Please provide three reasons why the financial test is the last one? A. Market – growth size vp B. Competitive advantage a. 5 forces (how they affect margins) C. Implementation a. Can you fill the Gaps b. Resourced pulled – what do I need, what do I have, gaps, how c. Time contraint D. Risks a. Wrong strategy is a big risk b. Competitor response c. How many change E. Financials a. Documents the outcome of your decision Why is the financial test the last one? - qualitative - based on assumptions - need to determine feasibility first - need justification of numbers 2. If two firms, A and B, face the same strategic issues, what factors would need to be considered to determine if the implementation plan for firm A, which was successful, can be applied to firm B Look at: - Feasibility- do you have the necessary skills and resources? If not can they be obtained in time - Supportability- do the key implementers understand the premises and the strategy? Are they committed to do it o The element of the strategy must be readily communicable o Should challenge and motivate key personnel - Consistency- Does the strategy hold together? o Should be minimal conflict within each level of strategy and between the levels o Useful for improving and refining the strategy to ensure that all elements are pointing in the same direction o May indicate the degree of change necessary 3. The “Ministry of Education” is requiring Ontario universities to increase their return on asset before further capital dollars can be invested in infrastructure. As a result WLU is considering providing classroom timeslot between 7:00AM and Midnight. You have been asked to prepare a change agenda. Please identify the major elements of this change agenda. Note: This question was created for the benefit of BU481 students and does not reflect any intentions, directions or objective of the University or the Ministry of Education. 4. According to the article “Evaluating Strategic Alternatives”, please define and describe the three fundamental issues that determine the payoff of a strategic choice. Please provide a relevant example discussed in class, covered in the text book or a case. - the prospects for superior profitability o depend on the attractiveness of the market opportunity and the ability of the business to gain and sustain a competitive advantage - the chances that superior profitability will be realized o can the strategy be implemented with the skills and resources at hand? o If not can the deficiencies be overcome without too much extra cost or time delay? - the acceptability of the risk-reward ratio o what might go wrong? o Can the damage that might be brought be contained o Will credible forecasts of revenue, cost and investment yield profit returns that warrant taking these risks? 5. As part of creating a change agenda, it is suggested that one needs to identify behavioral from non-behavioral changes. Please define behavioral change. Please explain why this suggestion is important within the context of strategy implementation. How does behavior change related to strategy? Please provide an example covered in class, in your text book or in a case covered in class.  Behavioural change involves changing behaviour to develop new organizational capabilities through changes in senior management behaviour, management processes, organization structure, or management style  Important because behavioural changes are suggested to be the most difficult to achieve and furthermore, the difficulty is often underestimated o Dangerous assumption is that if everything makes (to the people proposing it) then everyone will fall in line and change their ways o Important to consider since people sometime do not have the understanding and the skills required, and sometimes perceive that the changes are not in their best interests This suggestion is important within the context of strategy implementation because behavioural changes are generally harder to implement and take more time. It is suggested that you implement the hardest first which would be behavioural. Once you have identified which is behavioural and not then you can prioritize which should be implemented first based on difficulty and then logic. Ex look at in class case 6. Describe two characteristics and two management issues related to the crisis state within the crisis curve framework. What are two implications for a GM whose firm is in this crisis state? Please provide a relevant example covered in the textbook, articles discussed in class or cases covered in class. Characteristics - clear need for change - urgent timing, need to be done right away Management issues - achieving rapid pace of change - who to rely on? - May need change of management Implications - low resources - performance deteriorates - improbable for recovery - less margins because impacting vp Example - when Asda Englands largest grocery retail fell into crisis the BOD brought in Archie Norman to turn around the company. He addressed the issue with management on the fist day showing his urgency and took immediate action firing CFO which relates to management issues needing change in management 7. Describe two characteristics and two management issues related to the reactive state within the crisis curve framework. What are two implications for a GM whose firm is in this reactive state? Please provide a relevant example covered in the textbook, articles discussed in class or cases covered in class. Characteristics - Becoming clearer but not everyone sees it or they see it bur respond too slowly - need to get started Management issues - where to start? - Dealing with resistors - Power to press for change is important Implications - depleting resources - performance is sliding - projects performance into crisis - puts time horizon on your work Example - S&N was destroying sharholder value and realized change needed to be done so they began expanding their markets in order to increase value, however change was taking place much too slow 8. Describe two characteristics and two management issues related to the anticipatory state within the crisis curve framework. What are two implications for a GM whose firm is in this anticipatory state? Please provide a relevant example covered in the textbook, articles discussed in class or cases covered in class. Characteristics - Need for change is uncertain - Very little time pressure - Still have healthy strategic performance Management issues - Is change even necessary? Uncertainty - Lack of commitment/lack of urgency- business is doing well - credibility Implications - uncertain future - everything appears to be ok - obstacle for change because of the lack of urgency Example - For pepsi everything looked good, however after a PEST analysis as well as Porters 5 forces the future wasn’t as bright. Pressure from coke as well as private label colas looked to reduce future growth and margins. They took a chance, waited till every was on board since not everyone saw the need for change, and expanded product line, increasing growth to more than 15% instead of the 5- 10%. 9. Within the crisis curve framework, please describe the relationship between “Readiness for change” and “Capabilities”. Why is “readiness for change” a significant consideration to strategy implementation? Why are “capabilities” a significant consideration to strategy implementation? What are two implications of the relationship between these two factors for a general manager considering a strategy implementation? Readiness refers to commitment (or lack of it) that people feel making the changes required by the situation the business faces, and their ability to perform new tasks that will be required of them Capabilities are the skills needed to undertake the changes being discussed Relationship: capabilities are one of two stages of readiness to change and evaluates the skills needed given that they feel the changes are appropriate Readiness for change is a significant consideration to strategy implementation because if there is no readiness to change then your implementation is less likely to succeed. Capabilities are important because you need to use your capabilities in order to carry out the implementation Depending on your capabilities Set 2 1. According to your textbook, a general manager would have two options related to the “starting point” for action. Please define and describe these two options. Please identify two trades-offs that a GM would have to make in deciding one option versus the other. - Same as question 2? 2. According to your textbook, a general manager would have two “approaches” related to “guideline for actions”. Please define and describe these two approaches. Please identify two trades-offs that a GM would have to make in deciding one approach versus the other. Result driven – getting results now weather the employees are ready or not. Forcing change and focused on the bottom line Readiness driven- waiting until all the employees are on board the trade off? - result driven o Implement fast, timely (positive) o passive aggressive behavior for result driven (negative) o may have increase in turnover because you are imposing change to people who are not ready for change - Readiness driven o Greater chance of success o May take more time 3. According to your text book, more than one leadership style is available to lead the strategy implementation. Please compare and contrast the available leadership styles. What are two tradeoffs between these leadership styles? Please identify when these leadership styles would be most appropriate within the context of strategy implementation. Directive - assumes that initiator understands the problem, knows the solution, has power - tactics focus on communication of reasons, instructions, expectations - benefits include o fast o efficient o economizes on initiator time, energy - risks: o wrong diagnosis o wrong remedy o passive or active resistance o higher after the fact costs o only appears to change but not actually Participative - assumes that diagnosis and remedy will be developed in change process - tactics focus on collaborative exploration of causes, development of remedies, building commitment - Benefits: o Effective o Flexible o Develops and test problem and people at the same time - Risks: o Too slow o Potential to run off track o Avoidance of tough decisions Directive is most appropriate for the crisis stage of implementation as well as in the reactive stage if you have a solution to the problem Participative is most appropriate for the anticipatory stage as well as in the reactive stage when there is no solution 4. Please define and describe four key success factors related to strategy implementation.  Priority Objectives: o Having assessed the urgency and readiness of the change situation, ready to determine most pressing objectives o Which items of the change agenda should be addressed first? How many items should be dealt with at the same time? o Priority objectives list will contain both behavioural and non-behavioural changes and thus must consider how to blend the two  Action Priorities: o Whose behaviour are you going to change and how are you going to change it? o Involves setting priority targets, assessing each potential target in terms of commitment to the proposed changes and the capabilities they could bring to the change program  Change agents, change agents in waiting, bystanders, defensive resistors, and proactive resistors (page 237) o Once priority targets are established, need to decide what action you are going to take for each  Refer to discussion in question 1 for readiness and results driven change o Need to consider focus versus scope of your priority targets and the actions to be undertaken  Leadership Style: o Determines how you intend to relate to target individuals or groups and what specific tactics you will employ? o Refer to discussion in question 3 for directive and participative leadership  Pace: o Describes the amount of change that you want to accomplish in a given period of time o Encompasses both the scope and significance of the individual changes o Two key factors that should be considered in setting the pace are the urgency in the business situation and the urgency that you feel personally to press forward with the change o Consider breaking down the pace into time periods for implementation 5. According to the article ”Using the Balance Score Card as a Strategic Management System”, the authors suggest that the balance scorecard can be used as a “Strategic Management System”. Please define and describe three issues that the score card can help address within the context of strategy implementation. Provide an example discussed in class, the text book or from an assigned case or article. Translating the vision – helps managers build a consensus around the organization’s strategy and vision Lofty statements don’t easily translate into operational terms that provide useful guides to action Allows vision to be expressed as an integrated set of objectives and measures that describe the long term drivers of success Communicating and linking – lets managers communicate their strategy up and down the organization and link it to departmental and individual objectives Traditionally, departments are evaluated by their financial performance and individual incentives are tied to short term financial goals Scorecard gives a way of ensuring that all levels of the organization understand the long-term strategy and that both departmental and individual objectives are aligned with it Business planning – enables companies to integrate their business and financial plans Managers find it difficult to integrate diverse initiatives and change programs with their own champions, gurus, etc. When managers use the ambitious goals set for the balanced scorecard as a basis for allocating resources and setting priorities, they can undertake and coordinate only those initiatives that move them toward their long term strategic objectives 6. According to the article ”Using the Balance Score Card as a Strategic Management System”, the authors raise the concept of “strategic learning”. Please describe in details this concept. Please identify two reasons why the score card is a framework that can help with strategic learning within the context of strategy implementation. Third, the scorecard facilitates the strategy review that is essential to strategic learning. Traditionally, companies use the monthly or quarterly meetings between corporate and division executives to analyze the most recent period’s financial results. Discussions focus on past performance and on explanations of why financial objectives were not achieved. The balanced scorecard, with its specification of the causal relationships between performance drivers and objectives, allows corporate and business unit executives to use their periodic review sessions to evaluate the validity of the unit’ strategy and the quality of its execution. If the unit’s employees and managers have delivered on the performance drivers (retraining of employees, availability of information systems, and new financial products and services, for instance), then their failure to achieve the expected outcomes (higher sales to targeted customers, for example) signals that the theory underlying the strategy may not be valid. The disappointing sales figures are an early warning. Set 3 1. According to the article, "From competitive advantage to corporate strategy", the author identify the poor record of corporate strategy results. Please identify four reasons that according to the author have led to these results. Portfolio management Restructuring Transferring skills Sharing activities 2. Please compare the objectives of “Corporate Strategy” with those of “Strategy”. Are these objectives mutually exclusives or potentially inclusive? Why or why not? Please provide an example covered in the related article or discussed in class. 3. According to the article, "From competitive advantage to corporate strategy", the author describes a series of tests that a firm should use when assessing a potential corporate strategy opportunity. Please define and describe in details the 3 tests. Please apply these tests to a case or a firm that has been discussed in class or an assigned article. a. The attractiveness test - the industries chosen for diversification must be structurally attractive or capable of being made attractive i. Diversification cannot create shareholder value unless new industries have favourable structures that support returns exceeding the cost of capital ii. If the industry doesn't have such returns, the company must be able to restructure the industry or gain a sustainable competitive advantage that leads to returns well above the industry average. iii. An industry need not be attractive before diversification iv. This corporate 'comfort' is thought to lead to happy outcome, when it will turn into pain when diversification leads to poor results v. Example- Royal Dutch Shell and other leading oil companies have had this unhappy experience in a number of chemicals businesses where poor industry structures overcame the benefits of vertical integration and skills in process technology vi. Another common reason for ignoring the attractiveness test is a low entry cost - however in this case, even if the price is low, a one-shot gain will not offset a perpetually poor business vii. Many companies that rushed into fast-growing industries (computers, video games, robotics) were burned because they mistook early growth for long-term profit potential viii. Industries are profitable only because their structures are attractive (not because they're sexy or high-tech) b. The cost-of-entry test- the cost of entry must not capitalize all the future profits i. Diversification cannot build shareholder value if the cost of entry into a business eats up its expected returns ii. Strong market forces, however, are working to do just that. An acquirer beats the market if it pays a price not fully reflecting the prospects of the new unit - yet multiple bidders are commonplace, information flows rapidly and investment bankers and other intermediaries work aggressively to make the market as efficient as possible. Acquisition premiums are high and reflect the acquired company's future prospects -sometimes too well iii. Example- Philip Morris paid more than 4x book value for Seven-Up Company - Simple arithmatic meant that profits had to more than quadruple to sustain the preacquisition ROI. Since there proved to be little Philip Morris could add in marketing prowess to the sophisticated marketing wars in the soft-drink industry, the result was the unsatisfactory financial performance of Seven-Up and ultimately the decision to divest. iv. In a start-up, it is a catch-22 since attractive industries are attractive because their barriers are high. Bearing the full cost of the entry might well dissipate any potential profits. Otherwise, other entrants to the industry would have already eroded its profitability. The more attractive a new industry, the more expensive it is to enter. c. The better-off test- Either the new unit must gain competitive advantage from its link with the corporation or vice versa. i. Sometimes, the benefits to the new unit accrue only once, near the time of entry when the parent instigates a major overhaul of its strategy or installs a first-rate management team. Other diversification yields ongoing competitive advantage if the new unit can market its product, through the well-developed distribution system of its sister units, for instance. ii. When the benefit to the new unit comes only once, the parent company has no rationale for holding the new unit in its portfolio over the long term - once the results of the one-time improvement are clear, the diversified company no longer adds value to offset the inevitable costs impost on the unit. It is best to sell the unit and free up corporate resources. iii. This test DOES NOT imply that diversifying corporate risk creates shareholder value in and of itself - this is something they can do themselves. Diversification of risk should only be a by-product of corporate strategy, not a prime motivator. iv. Often executives try to run a bigger company and justify suspension of this test by cutting corporate staff and giving business near complete autonomy- such thinking misses the main point of diversification which is to create shareholder value 4. Example, GE - did their new unit benefit from being a banner under GE? Is being associated with the company beneficial to that unit and/or the corporate brand?Define and describe the corporate strategy of a case or firm discussed in class or in articles. Please describe in details to what extent their current or proposed corporate strategy may or may not build on a competitive advantage or create one. 5. According to the article, "From competitive advantage to corporate strategy", the author raised the concept of “value’ creation within the context of “corporate strategy”. Please define this concept of “value”. Please identify why this concept is important within the context of “Corporate strategy”. What are the implications of this concept for a CEO contemplating a corporate strategy opportunity decision. in order to succeed must add value by providing units with tangible benefits that offset the inherent costs of lost independence and to shareholders by diversifying in a way they cannot replicate This concept is important within the concept of corporate strategy because the very premises of corporate strategy outlined by porter indicate: "corporate strategy cannot succeed unless it truly adds value." Gm needs to ensure that the corporate strategy adds value or it will not succeed in the long run. 6. From the article "From competitive advantage to corporate strategy", the author identifies multiple approaches to create value derived from a parent company. Please define and describe in details three of these sources of value creation. Please provide an example covered in the related article or discussed in class. - Sources of Value: 5. Portfolio Management – Achieving diversification through acquisition. This can be a source of value because firms can use its expertise and analytical resources to find attractive acquisition targets that individual shareholders cannot, the corporation can provide capital on more favourable terms due to size, and the parent corporation can offer high quality review and coaching from an objective perspective. 6. Restructuring
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