STRATEGIC MANAGEMENT

 

Theme 1: Introduction

Theme 2: Fads and Fashions in management

Theme 3: Decision making for managers

Theme 4: Restructuring decisions

Theme 5: System thinking as a support tool for managerial decision making

Theme 6: M&A

Theme 7: Cost reductions

Theme 9: The role of the manager

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Theme 1: Introduction

  • Differences between a top manager and a manager:

Top manager

Manager

-       General, strategic view and manage the whole company;

-       Large company;

-       Influence;

-       Face of the company, image;

-       Leader, motivator;

-       Setting vision, mission, directions;

-       Highly committed, live to work;

-       Highest level;

-       More complex;

-       Authority to commit.

-       Specialization, partial view over the company, tactical or operational role and deal with daily issues

-       Limited tasks;

-       Focus on specific task;

-       Work to live;

-       Receive orders;

 

  • Differences between a leader and a manager:

Leader

Manager

-       One can be a leader without being a manager

-       Synthesis

-       Out-of-the-box thinking

-       Talent/ trait/ natural

-       Influencing ability

-       Inspiring ability

-       Trust

-       Have followers

-       Charismatic

-       Vision, strategic thinking

-       Communicator

-       Role model

-       Emotion

-       Leaders produce changes and movements: establishing direction, aligning people

-       Motivating, inspiring.

-       A manager should be a leader

-       Job

-       Analysis

-       Can be learn

-       Organizational skills

-       Formal authority

-       Follow the rules

-       Control, monitoring

-       Ratio

-       Managers produce order and consistency: planning, budgeting, organizing, staffing

-       Controlling, problems solving.

 

  • Why would we pay incentives or bonuses?

Advantages:

-       Goal congruence

-       Motivation

-       Reduce agency problems

-       Increase involvement

-       Retention as good managers are scarce resources

-       Proven effectiveness: better performance, higher profits

Disadvantages

-       Expensive

-       Short-term effect

-       Not objective

-       Risk-taking

-       Greedy instead of loyalty

-       Internal competition, conflicts

-       Image/ wrong message

-       Reverse effect when bonus stops

-       Time lag of negative effects

 

  • Mintzberg: The 05 minds of a manager:

-       The reflective mindset: managing self

-       The analytic mindset: managing organizations

-       The worldly mindset: managing context

-       The collaborative mindset: managing relationships

-       The action mindset: managing change.

  • Minztberg: What do managers do?

Managerial works involve:

-       Interpersonal roles

-       Information roles

-       Decisional roles

These roles require a number of skills: developing peer relationships, carrying out negotiations, motivating subordinates, resolving conflicts, establishing information networks and disseminating information, making decisions with little or ambiguous information and allocating resources.

Managerial works involve performing a number of regular duties, including ritual and ceremony, negotiations, and processing of soft information that links the organization with its environment.

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Theme 2: Fads and Fashions (Van Rossem)

 

Why study management fashions?

From the perspective of the management community:

-       Managers confront daily with both popular and classis management concepts;

-       Managers learn new and popular fashionable concepts from the press or attending seminars;

-       Fashions are often depicted as “one-day fly”, to be adopted on a wave of collective hysteria and having devastating effects;

-       However, if fashionable concepts tend to be deleterious, why is there so much interest in them?

-       Differences in how managers deal with fashion, can explain differences in corporate choices.

From the perspective of fashionable concept creators and distributors:

-       They earn their livings by working in this area.

Content of management fashions:

-       Signs of the time;

-       Rational and progressive;

-       Depending on who has control on disseminating in which ideas flow from the power (Europe, US);

-       Depending on economic factors: expansionary periods, periods of contraction;

-       Study of current fashions;

-       Fashions build on each other;

Why creation of management fashions?

-       Exogenous explanations: it is due to techno-economic environmental changes, leading to gaps. Gaps must be brought to the attention of managers.

-       Endogenous explanations: even when there is no gap, knowledge entrepreneurs will launch discourse creating a “gap”.

-       Management fashion setting process.

Why do managers buy fashion? (Neo-institutional theory – Abrahamson)

-       Companies operate in institutional environments where there are social defined and legitimized norms;

-       Companies have to adopt those norms to acquire legitimacy;

-       Acquiring legitimacy enhances survival;

-       Stakeholders expect managers to manage their companies rationally and also norm of progress govern.

-       No adoption necessary, at least “give impression” conforming to techniques and concepts;

-       Social pressure to adopt the norm.

Conclusion

-       Managers are not blind consumers, especially top managers as they read more, have a better education and more contacts with management concept disseminators;

-       They are also less eager and result-oriented;

-       They only pay attention to relevant information.

-       However, as for low-level managers, they are more eager. Fashions are central in their minds and fashion is important to them.

-       Young and low-level managers do not have a professional framework;

-       Management is not something you learn at school but it is accumulated through your experiences, reading, knowledge acquiring from reality.

Positive and negative effect of management fashions:

Positive:

-       Fashion is developed from practical problems that companies face into widely applicable mechanisms that guide a company over a problem;

-       Fashion is hypothesized by experienced researchers who have great expertise on the subject and a broad view of the business arena;

-       Fashion is created in form of easy-to-understand concepts, systematic and structural theories and guidelines that help managers adopt in a coherent and logical way (Ex: CRM, BPR, etc);

-       Fashion is sometimes a social norm in business that reflects the company's professionalism. It also helps in PR, corporate culture, marketing, etc;

-       Fashion animate and orientate people;

-       Mental maps – introducing a common language;

-       Binding mechanism for change management;

-       Face saving;

-       May turn attention to problems which have been overlooked;

-       There is continuity in fashions;

-       Lend new energy, give new ideas;

-       Help managers to cope with pressures;

-       Recognition – status. It is also a way for a company to differentiate from others. That’s why large companies often adopt new fashion after old fashion has been adopted widely by low-reputation companies.

Negative:

-       Fashion often leads to a belief that it could cure all, helping companies to overcome problems. Its application and effects are sometimes exaggerated

-       Fashion can lead to counter-effects when it is applied in incompatible organizations.

-       It also doesn’t help if a company adopts it in a rigid, inflexible way.

-       Companies may misuse or abuse fashion; applying it just to catch up with trends or competitors.

-       Concealing complexity, ambiguity;

-       Depart from common sense.

-       Fashions become a commodity.

-       Theoretically not underpinned;

-       Full of contradictions;

-       Empirically emaciated;

Lessons learnt:

-       Think before you act;

-       Consider whether fashion is suitable to your company;

-       PR? Internal goals? Motivation? Umbrella? Status?

-       We should take fashion seriously since it has been hypothesized that fashion is a genuine social mechanism with fairly broad explanatory potential in organizational analysis.

-       Therefore, we wish to suggest that a more active, scientific stance be taken with respect to forces shaping fashions and that fashion becomes more evidence based process that responds to changing organization, political and economic environments, rather than a superstitious learning process.

 

Management fashion: Abrahamson

  1. A theory of management fashion:

Norms of rationality and progress

-       It is largely a cultural phenomenon, shaped by norms of rationality and progress.

-       Rational management techniques are labels that denote for organizational stakeholders both certain managerial goals that effective managers should pursue, as well as the means to pursue these goals efficiently.

-       If managers do not use those techniques, stakeholders will be disappointed.

-       Norms of progress:

-       They are cultural commodities deliberately produced by fashion setters in order to be marketed to fashion followers.

The management fashion setting process: (selection mechanisms)

-       Creation: innovations are significant departures from the state of the art in management at the time they first appear. It must be different.

-       Management fashion setters produce the collective beliefs that certain management techniques are both innovations and improvements relative to the state of the art.

-       Most management innovations may be created by managers.

-       Selection: fashion setters can always select the techniques they attempt to launch into fashion from a broad variety of new, recently created management techniques, as well as from a bevy of old, forgotten management techniques.

-       One selection process is that artists invent cultural innovations in artistic circles located outside the fashion-setting community, and fashion setters scout out such innovations, select a few, and bring them into the fashion-setting community for processing and dissemination.

-       A second selection process could also operate, if it is fashion setters who either create management innovations or resurrect old and forgotten management techniques.

-       Processing: when a management technique is selected by fashion setters, in what sense do they process it? Processing involves the elaboration of a rhetoric that can convince fashion followers that a management technique is both rational and at the forefront of management progress.

-       Rhetoric creates the belief that managers must pursue certain goals by highlighting organizational performance gaps whose goal it should be for managers to narrow. The rhetoric must convince that the technique it champions is the most efficient means to attaining an important goal. The rhetoric must also create the belief that it is at the forefront of the management progress.

-       Dissemination: publications.

Forces shaping management fashion demand (the market metaphor of offer and demand and the interlink between the two:

-       Socio-psychological needs. Management fashions satiate fashion followers’ psychological desire to appear individualistic and progressive, without being deviant and retrogressive.

-       Frustration and despair across individuals loosens institutional constraints on their behaviours and renders them vulnerable to unrealistic hope that quasi-magical solutions will relieve their sources of frustration.

-       New management fashions will tend to emerge when old ones have been adopted by lower reputation organizations.

-       Techno-economic explanations of management fashion demand. Technical and economic forces shape management fashion demand.

-       The ebb and flow of management fashions will be related to macroeconomic fluctuations.

-       Political forces.

-       Unsolvable contradictions within an organization also intrigue a demand for management fashion.

-       Norms of rationality and progress open up market for management fashions.

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Theme 3: Decision making for managers

Models for decision making:

-       SWOT analysis

-       Vroom-Yetton-Jago decision model

-       BCG Portfolio model: resource allocation in a multi-business firm

-       Risk – Reward model

-       McKinsey 7 S framework

-       Ansoff Growth matrix

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Theme 4: Restructuring decisions

Reasons for restructuring Carestel:

-       Inefficient investments;

-       Expansion of airport catering: not efficient;

-       Lunch garden: old style (100% financed by banks)

-       Lack of transparency;

-       Not capable of serving debts.

Suggestions:

-       Fire the CFO and hire a new one who can adapt rapidly to the situation;

-       Cash centralization;

-       Need a turnaround manager who can make decisions without 100% of proof, sufficient information;

-       Turn-off the “water tap”;

-       Negotiations with suppliers/ banks;

-       Private placements.

-       Define core businesses and divest weak operations

-       Recovery of company assets

-       Communication with stakeholders

-       Restore operational profitability

Personality traits of successful turnaround managers:

-       Early years: insecurity, shortage or loss

-       Independence: survival instinct, be thrown on one’s own resources

-       Motivation and powerful/ thrust: need to control the future

-       Extraordinary personal conviction: unbalanced environment, private setting

-       Early responsibility

-       Charismatic leadership

-       Communicator

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Theme 5: System thinking

A system consists of a number of things that hold together and are linked to each other by the principle of causality. It covers different processes, causality relations and coherence.

How do we know how systems hold together? There is a difference between believing and knowing. You can have values and beliefs that if the system is like this, this is absolutely important.

A mental model, everybody has a mental model: how you believe the world is working → e.g. people who are heavy smokers can believe they cannot get cancer ó science says it is harmful for your health. Everybody can have a different view on the world.

“HOW DOES IT WORK?”

-      A perspective for going beyond events.

-      Looking for patterns of behaviour.

-      Seeking underlying systemic interrelationships, responsible for patterns of behaviour.

-      Interrelationships which are responsible for the manner in which systems operate

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Theme 6: M&A

Selection process and post-acquisition: Lotus Bakeries

Strategies:

-       Focus growth objectives on best-performing products but fixing weaker performing ones.

-       The better a product is performing, the further it is away from its full potential.

Reasons for acquisitions:

-       A company wants to be stronger in a market;

-       A company makes a takeover to reach critical mass in a segment or market;

-       A company does not want the target to fall into competitors’ hand;

-       A company wants to conquer but can’t move fast under its own steam;

-       A company thinks it will solve its growth problems by making an acquisition;

-       Simply the ego of the management;

-       The target is cheap and the company wants to reorganize and integrate it;

-       A company needs to grow, either internally or externally, otherwise, the fixed costs will grow, as will the need for structures, and profitability will decline;

-       Increasing globalization means that companies have to be bigger. Just to keep up a company, it is not necessary to enlarge but due to constant internationalization, it needs to get larger all the time.

Dangers in the acquisition process:

-       The greatest danger is “enthusiasm”, arrogance of complacency, leading to the desire to conquer over control;

-       What is good about a company is told in the first hour, but forget to pinpoint weaknesses and threats.

-       Not listening to advisors, no proper due diligence reports;

-       Reasoning too much on one’s own business, not being able to step back;

-       Improper evaluation or forecasting about the market evolution and competition;

-       Receiving incorrect information;

Recommendations during negotiation:

-       Start from facts and figures, not from the ego of the management;

-       Be mentally prepared to quit;

-       Involve the company editor early to check the quality of the data and prepare the due diligence;

-       Taking pains to review and get to know senior executives, including those not involved in the technical aspects of the acquisition;

-       Taking corporate culture into account;

-       Lots of legal and social aspects need to be in order;

-       The usual ratio of loans for acquisition purposes can be dangerous.

Integration:

-       Agree in advance on how and when;

-       Speed and timings;

-       Who? Which team? Future functions etc;

-       Integration costs;

-       Information flows.

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Theme 7: Cost reductions  

1. Change management:

Examples of changes in organizations:

-       Mission changes

-       Strategic changes

-       Structural changes

-       Attitudinal and behavioural changes of staff

Successful change management is more likely to occur if the followings are included:

-       Benefits management and realization to define measurable stakeholder aims, create a business case for their achievement, and monitor assumptions, risks, dependencies, costs, ROI, damaging effects and cultural issues affecting the progress of the associate work.

-       Effective communications that inform various stakeholders of the reasons for the change, the benefits of successful implementation as well as the details of the change.

-       Devise an effective education, training and skills upgrading scheme for the organization.

-       Counter resistance from the employees and align them to overall strategic direction of the organization.

-       Provide personal counselling to alleviate any change related fears.

-       Monitoring of the implementation and fine-tuning as required.

2. Change curve

-       Stage 1: Shock and Denial

-       Stage 2: Anger and Depression

-       Stage 3: Acceptance and Integration

3. Spend management

-       Spend management is the way in which companies control and optimize the money they spend. It involves cutting operating and other costs associated with doing business. (SG&A: Selling, General and Administrative costs)

-       Spend management is meant to represent a holistic view of the activities involved in the “source-to-settle” process. This process includes:

+ Spending analysis

+ Sourcing

+ Procurement

+ Receiving

+ Payment settlement

+ Management of accounts payable and general ledger accounts

3.1  Cost reduction and Revenue generation

-       In hard times, companies often cut costs to increase EPS. However, this is only a short-term strategy and not sustainable. This tactic creates little long-term value, nor any long-term sustainable savings.

-       That’s why “Spend Management” has become a key long-term strategy for companies seeking to maintain long-term and sustainable value.

3.2  Spend management systems:

-       Most recently, companies have been utilizing new tools:

+ E-sourcing (for bidding and reverse auction)

+ E-procurement (to control and monitor purchasing activities and contracts)

+ E-spending analytics (to gain insight into how much money is being spent on what types of services and products)

-       Some tools are also addressing the entire spending chain, or purchase-to-pay cycle.

3.3  How spend management saves money?

-       Reduce “maverick spend”: ad-hoc buying by requestors that is not in line with the company preferred process or system. In this case, some control mechanism should be put in place that:

+ Prohibits this type of purchasing;

+ Sets up penalties for these;

+ Puts into place some types of approval or check and balance system.

-       Increase of spend economies of scale (negotiate in a given year, etc)

-       Increase process efficiency: automating, sourcing, procurement and payment processes can greatly improve the efficiency of paper used and manual processes.

-       Increase procurement efficiency: using e-sourcing tools for the bidding and contract award process.

3.4  Spend management in context:

-       Spend management is a subset of Total Cost Management.

-       Spend management helps creating long-term and sustainable savings. It is considered to be an ongoing cyclical process.

3.5  Design sourcing and procurement organizations

3.5.1      Capacity assessment:

-       A well-defined S&P organization requires 04 key capabilities:

+ Spend analytics

+ Strategic sourcing

+ Contract and vendor management

+ Procurement operations management

-       These are enabled by standard processes, tools and technologies, strategic and operational skill-sets and a clear governance structure.

-       Roles and responsibilities need to be clearly articulated for all categories.

-       Appropriate technology enablers are required to support sourcing and procurement processes and compliance across spend categories.

3.5.2      Identity outsourcing potential:

-       To determine outsourcing potential, the organization must consider the juxtaposition of strategic and transaction elements of S&P processes with focus on identifying the transactional components.

3.5.3      Key success factors

-       Active involvement of an executive sponsor.

-       Alignment of procurement organization with the strategic direction of the company.

-       Enable S&P capabilities through appropriate investments in people, process and technology.

-       Clearly defined roles and responsibilities.

-       Benchmarking based on industry trends and market analyst to drive strategic sourcing and continuous improvement of the S&P organization.

 

4. Monitoring strategic cost reductions happen and sustainable (Guy Schuermans)

-       Strategic Cost Management: reduces costs while improving client service level and reducing risk.

  • Lean: efficiency program – waste management – aiming at improving service quality, risk management and people engagement.

-       Increase straight through processing to become less volume dependent.

-       Increase development efficiency: reduction of average man day rate and productivity improvement.

  • Procurement Spend Management (PSM): focuses on structural cost reductions related to non-payroll expenditure.
  • Real Estate Strategy.
  • Lean – Continuous improvement and transformation:

Lean is based on 05 key dimensions:

-       Voice of the customer: determines what the customer expects.

-       Process efficiency: reduces waste in business processes and provide greater efficiency.

-       Performance management: introduces performance monitoring and the necessary dialogue around it.

-       Organization and skills: determine structure and skill sets needed to work most efficiently.

-       Mindset and behaviour: help people to adjust to the new ways of working.

  • PSM initiative – Objectives: Target all non-payroll expense types.

-       Capture cost savings potential through structural category management and cross-functional collaboration.

-       Cost-savings to be generated through either a group-wide wave approach or specific division-led initiatives.

-       Ensure sustainable of cost savings through capacity building and knowledge transfer.

-       Adapt the procurement organization.

-       PSM aimed to upgrade practices in 03 key areas:

+ Category management

+ Cross-functional collaboration

+ Target setting and performance management.

+ Mindsets.

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Theme 9: The role of the manager – KPMG case

 
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