Introduction to strategic management

Introduction to strategic
management report 2014
Student name:
Student number:
Module code: UGB 202
Submission date: 01 feb.2014
Word count: 4330
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Table of contents
Contents
Title page
1
Table of contents ..................................................................................................................................... 2
1
Introduction ..................................................................................................................................... 3
2
Strategic management processes ................................................................................................... 4
3
Strategic analysis............................................................................................................................. 5
3.1 The External Environment ............................................................................................................ 5
3.1.1 The General Environment ...................................................................................................... 6
3.1.2
The Competitive Environment ........................................................................................ 8
3.2 The Internal Environment ............................................................................................................. 9
3.2.1 Value chain ........................................................................................................................... 10
3.2.2 A resource based view ......................................................................................................... 10
3.2.3 Performance management .................................................................................................. 11
3.3 SWOT Analysis............................................................................................................................. 12
4
Strategic formulation .................................................................................................................... 13
4.1 Levels of strategy ........................................................................................................................ 13
4.1.2
Business-level strategy ...................................................................................................... 13
4.1.3
Corporate-level strategy ................................................................................................... 15
4.2 Strategy Evaluation ................................................................................................................. 17
5
6
Strategy Implementation .............................................................................................................. 18
5.1
Organizational Structure, process and system ..................................................................... 18
5.2
Leadership and the learning organization ............................................................................ 20
5.3
Corporate Governance...................................................................................................... 21
5.4
Stake holder analysis......................................................................................................... 21
Conclusion ..................................................................................................................................... 21
References ............................................................................................................................................. 22
Appendix 1 ............................................................................................................................................ 23
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1 Introduction
Strategic management in the business world today is the core discipline and
factor to achieving success of any form against the strong competitive
environment we trade. A perfect exhibition of any work or vision can only be
achieved through a perfect strategy and performance management. Chandler
(1962) defined strategy as “the determination of the basic long-term goals and
objectives of an enterprise and the adoption of courses of action and the
allocation of resources necessary for carrying out these goals.” In addition,
Porter (1996) explained that competitive strategy is about being different and
also achieving a competitive advantage. It means knowingly acknowledging a
different set of activities from other competitors to deliver a unique mix of
value. Example; Apple has a competitive advantage over its rivals by being
better at developing new services and re-aligning its offerings.
The focus of this report is the strategic management process of the
construction industry; specifically on Balfour Beatty plc. A well established firm
over the years in the construction industry globally. This report will consist of
the steps in strategic management process and the relationship within,
likewise there functions and impacts towards Balfour Beatty (often referred to
as Balfour in this report), the different strategic analysis focus and different
levels of strategy formulation and then the strategic implementation process
which is suitable with the organisations structure while establishing a
competitive advantage over its rivals. Further details of the company can be
found in appendix 1.
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2 Strategic management processes
Most early strategists have a core ideology on the role of strategy, Henry (2011)
explained that there is an understanding that the role of strategy is to achieve competitive
advantage for an organization which is the difference between you and your competitors
and this can be gained through strategic management. Following this, Henry (2011, pg.6)
explained that “strategic management is about analysing the situation facing the firm and
on the basis of this analysis formulating a strategy and finally implementing that strategy.
The end result is for the organisation to achieve competitive advantage over its rivals in the
industry”. Similarly, Campbell (2002) refers to strategic management as “a set of theories,
framework, tools and techniques designed to explain the factors underlying the
performance of organizations and to assist managers in thinking, planning and acting
strategically”. Strategic management process consists of three stages according to Henry,
which are interdependent of each other. These three processes which will be explained
further below are relevant in achieving a competitive advantage. Fig. 2.1 shows they are
connected and form a continuous process within the organization, which matches its
resources and strengths to produce a competitive advantage and meet its key success
factors.
FIGURE 2.1: A strategic management process
Strategy
Analysis
Strategy
Formulation
Strategy
Implementation
Source: Understanding strategic management, Henry, A.E (2011)
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3 Strategic analysis
Strategic analysis is the main starting point towards achieving a competitive advantage.
Before that, organizations use scanning and monitoring in determining the environmental
trends then forecasting to imagine the possible events. Strategic analysis involves the
analysis of the external environment and internal environment hereby allowing the
company such as Balfour to determine its strengths and opportunities within its
environment and also the weakness and threats. Lynch (2012) explained strategic analysis
as “the conducting of an examination of the objectives and the organizations relationship
with its environment and also analysing the resources of the organization”. It’s a platform
where Balfour can examine their values, visions and mission statements. In relation to
Balfour Beatty, Fig.3.1 below illustrates a broader perspective of the strategic analysis
environments and factors which will be explained in details later.
FIGURE 3.1: The strategic analysis elements and factors.
The
Organization
External
Environment
The general
environment
The
competitive
environment
Internal
Environment
Values,
Resources,
Performance
3.1 The External Environment
Strategic analysis within the external environments as shown in fig.3.1 consists of the
general environment and the competitive environment according to Henry (2011). The
changes in these 2 environments can affect the trends of developments in the organization.
These changes can either be opportunities or threats to the organization. Fig.3.2 illustrates
the relationship within the environments. Basically, it shows how the general environment
helps the competitive environment understand more about its competitive advantage while
dealing with its rivals.
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FIGURE 3.2: The organisation and its external environment
Source: Understanding strategic management by Henry, A.E (2011)
3.1.1 The General Environment
To begin with, Johnson et al (2008) explained the general/macro environment as the
outmost layer of the organization. It consists mainly of the broad environmental factors
which its change in activities might adversely affect the organisation to a lesser or greater
extent in most cases. The changes of the general environment affect all other industrial
sector and not restricted to the construction sector alone. Strategic analysis of the general
environment techniques includes the PEST analysis as shown in Fig.3.2 and scenario
planning.
PEST Analysis
As explained by Henry (2011), this tool is useful in the analysis of the general
environment. It consists of the political factors, economical factors, social factors and
technological factors. The political factor is generally made up of government policies and
legislation that are set up to monitor issues of organizations in respect to the benefits of the
nation’s stability, taxation policies and government regulation; The economical factors deals
with the economy and monetary aspects and the changes within, which includes currency
fluctuations, rise in exchange rates and increase of expenditure; The social factor relates to
the shift in values and culture/lifestyle; the technological aspect focuses on the rapid
innovation and modern environment we trade. Analysing the general environment of the
construction industry (Balfour Beatty) with these factors, the following pros and cons in
table 3.1 might be considered.
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Table 3.1: PEST Analysis.
Political factors
• Factors such as government enacting new building
society laws as seen in the United Kingdom in
1986 or the new health and safety law
implemented in 2011 would result to a change in
the industries stability and operational
performance. Can be seen as a threat.
• New taxation policies by the government might
result in Balfour Beatty’s abilities to expand
further in the global market.
• Also health and safety laws governing the
construction industries upgrade as seen in U.K
recently might provide an edge to bigger firms
such as Balfour Beatty in terms of their years of
experience in adapting to change easily.
Economical factors
• Political agenda of the government in terms of
economic growth will benefit the construction
industry because of the perceived economic
stability. Example the Prime minister of the
United Kingdom and the President of the United
States of America has an agenda towards this
stance.
• Rises and inflation of exchange rates will strongly
affect the industry and its various projects due to
lack of funds from the banking sector example
include the recent inflations which has set the
construction industries in United kingdom on a
financial nose dive.
Social factors
• Change in lifestyle might be an open opportunity
for the industry, example includes people’s recent
preference in modern offices and houses will
generally lead to the refurbishments of old
industries and construction of new buildings
which is work opportunities for the industry.
• Cultural changes within the society can lead to
opportunities for the construction industry as it
encourages expenditure and finer taste for the
consumers.
Technological factors
• The pace of change in technology is constantly
increasing and it’s a weakness for organisations
with rigorous structures that finds it hard to adopt
to change. This might provide a competitive
advantage for flexible organizations that can adapt
and use it to a timely advantage in project
completions.
• Change in technology and series of innovations,
also opens up a big opportunity for new entrants to
adapt easily and change the characteristics of the
old existing companies.
Scenario Planning
This is a tool which is of great benefit to organizations for detecting opportunities and
threats within its external environment particularly in conditions of uncertainty. It often
helps managers in decision making and business forecast. Henry (2011) demonstrated that
scenario planning can benefit the organization deeply if they are able to pinpoint many
possible opportunities and threats facing the organization in the near future through the
proper combination of the scenario planning and pest analysis. Furthermore, Lynch (2012)
explained scenario based analysis as a model for the possible future of the organizations
environment. Scenario examples related to Balfour Beatty as a construction industry might
be plans such as ‘what would happen’ if the current global warming continues to rise on a
rapid rate by the year 2020, would the environmental change decrease the cost of building
materials due to the less request of insulations in homes and offices, or would it increase
due to a large request of more air vents at homes and offices as a result of the global
warming. A scenario provides different options for the managers to approach from.
Moreover, Johnson et al (2008) explained them “as plausible alternative views of how the
business environment might develop in future”
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3.1.2
The Competitive Environment
Fig. 3.2 demonstrates the competitive environment as the factors which might impact
more directly on the organisation. It’s made up of issues which are particularly related to
your specific industry like the customers, competitors, suppliers, potential new entrants and
threat of substitute products. These issues can be analysed using Porters five forces
framework as shown in fig.3.3.
FIGURE 3.3: Porters five forces framework of industry competition
Source: Competitive strategy: Techniques for Analyzing Industries and Competitors, Porter, M.E (1980)
Porter’s five forces framework as shown in fig. 3.3 helps an organization to analyse its
competitive environment so as to establish future threats and opportunities. Furthermore,
Henry (2011) explained that combination of strengths of these five forces will likely
determine the organizations return on investment or the potential for profits within any
given industry although some critics argued its lack of depth and the exclusion of
collaboration within the industry. Table 3.2 below explains Porters five forces in relation to
Balfour Beatty plc.
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Table 3.2
The bargaining
power of buyers
The bargaining power of buyers is the ability which the customers have in bringing
down the price of goods or services. Porter explained that this power increases
under the following situations: If there are concentrated buyers, When products and
services are indifferent, if the buyers can supply themselves, When the switching
cost is low.
In the case of Balfour Beatty vs. the buyers, these issues can be subdued using
their brand status as the leading figure in the construction industry and their ability
to operate in wider outreach and different dynamics of the industry as show in
appendix 1.
The bargaining
power of suppliers
Porter explained that supplier’s power can be high under the following situations:
When there are a handful of suppliers, If the products can’t be substituted, If the
supplier controls the product, When the switching cost is low.
It can be argued that Balfour Beatty is a construction industry operating in over
80 countries across the world as shown in appendix 1. The services they provide vary
and can’t depend on a handful of supplies to run this effectively.
Threat of new
entrants
Porter explained this as the rate or extent at which new industries decides to join
the market. Porter argued that issues such as capital requirements, economic scale,
and switching cost among other issues will determine the barriers at which
industries make an entry. The office of the national statistics (www.ons.gov.uk)
showed the different trends that suggests the downfall movement in the
construction industry, yet Balfour Beatty still stand as the pace setters in the
industry suggesting that new entrants will have little effect on them.
Threat of substitute
products.
This is the introduction of new product and services with similar needs.
The extent of
competitive rivalry.
This is the extent in which the market competition is intensified. The construction
industry is one of the industries with a great deal of competition for market
dominance among rivals.
3.2 The Internal Environment
The strategic analysis of the internal environment as explained by Henry (2011) enables
organizations to understand how it can efficiently utilize the opportunities in its external
environment. This can be achieved through the analysis of the organizations values,
resources and performance to pinpoint it strengths and weakness. Tools such as value chain
analysis can be used to analyze the organisational values; a resource based view analysis can
also be used to analysis resources and capabilities. Also performance management
techniques such as benchmarking, financial statements like balance sheet, profit and loss
account among other simple quantitative tools like balance scorecard can be used to
analyze the organizational performance. It will be important for organizations such as
Balfour to assess the organizations performance in order to determine if the organization is
meeting the shareholders objectives. Below in fig.3.4 is the value chain analysis tool,
commonly used in the value analysis of an organization.
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FIGURE 3.4: Value chain.
Source: Competitive strategy: Techniques for Analyzing Industries and Competitors, Porter, M.E (1980)
3.2.1 Value chain
The value chain is used to analyse the activities and resources of the organization.
Organizations need to constantly maintain and increase their values to ensure their long
term vision is fulfilled. According to Lynch, the value chain identifies where value is added in
an organization and links the process with the main functional parts of the organization.
Porter classified the value chain into two, the primary activities which consists of activities
that are involved in the creation of sale and services while the Support activities oversees on
the efficiency and effective performance of the primary activities. Furthermore, Henry
explained that every primary activity contributes to organizations competitive advantage
with regards to the industry. Example; Balfour Beatty provides professional services which
consists of planning, design, programme management, est. This falls under operations in
Porters value chain and will require support activities such as human resource management
for staff recruitment and training, procurement for acquiring the technical expertise/ best
talents and services available and firm infrastructure for the general management and
oversight of the departments. In addition, Henry demonstrates that it is suitable to
acknowledge that organisations can also add value through cooperation with their
distributors, suppliers and customers. Porter explained this process as the value chain
system.
3.2.2 A resource based view
A resource based view of the internal environment is the analysis of the organizations
resources and capabilities. Henry explained it further as an ‘inside-out’ approach and that it
focuses on the internal capabilities of the organization in formulating strategy. Its
fundamental role is to add value to the organization. It’s classified into tangible and
intangible resources. Balfour Beatty might gain a competitive advantage through its
tangible resources as shown in appendix 1 based on its strong financial capabilities and
highly rated stock price that has placed them in the first position among the construction
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industries. Grant (1991) demonstrates its impact on strategy formulation with the resource
based theory in fig.3.5. Following this, he explained resources as the source of an
organizations capabilities and capabilities as the main source of its competitive advantage.
In addition, Henry explained that resources alone those not fulfil the purpose, but its
efficient configuration of resources that produce the required competencies for an
organization. They are further explained as attributes that helps an organization in its
competitive market. For instance, before Balfour Beatty was able to compete in the
construction industry, they needed some knowledge in architectural designs, building
materials and project management. They wouldn’t have been able to compete in the
industry irrespective of their other resources.
FIGURE 3.5: A resource-based view of strategy analysis.
Source: The resource-based theory of competitive advantage. Grant, R.M (1991)
3.2.3 Performance management
This is a vital factor in the analysis of the internal environment. It is also known that
assessing organizations performance may depend on the basis in which the organization is
foamed despite the assumption that organizations are formed wholly to maximise profits
for the shareholders. So, in performing an efficient performance analysis of Balfour Betty, it
is essential to note that it is a public business enterprise with aims of maximising
shareholders profits and values. The performance analysis can then be carried out using
tools such as financial analysis and the balance scorecard.
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The balance score card
The balance score card is a tool formed by Kaplan & Norton (1992) with the aim of
providing organizations a means of measuring their performance from a wider perspective.
These perspectives include the customer, an internal, a functional and a future perspective.
Table 3.3 below illustrates an example: The replacement of building materials like bricks
with cement blocks in house construction, what is the possible impact on Balfour Beatty.
Table 3.3
The Customer
Perspective
This explains the views and attitudes of customers in regards to the organizations
change in services or products and also its impact on the market. For instance,
will the customers endorse the change above?
The Financial
Perspective
This explains how the shareholders view the change. Ideas such as will it
increase sales, cash flow and cost benefits are analysed.
The Internal
Perspective
This deals with the measures and adaptation required internally for the
change to occur and also its impact on the quality and values of the
company.
The future perspective analyses if it’s a concept they hope to retain for
long and the possibilities of being a welcomed innovation.
The Future
Perspective
3.3 SWOT Analysis
As a result of the above mentioned analysis, A SWOT analysis can then be generated
with the information given which have identified the opportunities and threats in the
external environment then the strengths and weaknesses in the internal environment. With
the aid of the various tools used above, the organization can now identify a full SWOT
analysis which enables the formation of a competitive strategy when matched together. For
instance, Balfour Beatty can be said to be enriched with various strengths and less
weakness due to its reputation, market position, values and so on while the various laws
surrounding its general environment can be a slight threat compared to the opportunities
within its competitive environment as it has an edge in porters 5 forces analysis. All these
matched together will aid in strategy formulation in the organization.
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4
Strategic formulation
Following the sequence, the next process is the Strategy formulation stage which sets
out on the results of the analysis to formulate a strategy for the organization. As explained
by lynch (2012), an effective organization strategy will have to be built on the particular
skills of the organization and its relationship with the share holders. Balfour Beatty can
drive value from there various set of capabilities in a way that generates a greater sum of
impact and development. Furthermore, Mintzberg et al (2009) explains that strategic
planning occurs dramatically but qualitatively at times, it utilizes experience in strategy
formulation. However, Markides (1999) argues that effective strategic design occurs as a
process of continuously asking questions, but that correctly formulating the questions is
more relevant than the solutions.
Since strategic analysis has been covered above, this section will evaluate the different
levels of strategy formulation and approaches in relative to Balfour Beatty.
4.1 Levels of strategy
According to Henry (2011), the different levels of strategy consist of...
1. Business-level
2. Corporate-level
3. International-level
The business level strategy is a way of separating out and formulating a competitive
strategy at the level of individual/strategic business unit. Its role is to establish a strategy
which allows it to compete successfully in the market place and to contribute to corporate
strategy. The corporate strategy underpins the business level and covers the growth of
entire organization. It determines the business opportunities organisation would go in and
how to relate it with each other. Recently, Sony C.E.O, on discussion about their corporate
plans explained that “One quarter does not make the whole business, so we plan on making
the whole business grow in depth and sales.” (BBC News, 2014)
4.1.2 Business-level strategy
Organizations such as Balfour often compete in different markets with different
customers. As a result, the business-level strategy might vary or take an autonomy approach
so as to satisfy its various stakeholders. For instance, Balfour operates in over 80 countries
with diverse ethnicity and different macroeconomic factors. They might choose to opt for a
more decentralised approach in order to communicate their values effectively. The business
level strategy is concerned with an organizations position within the industry, particularly to
its competitive environment and in relative to Porters 5 forces analysis in Fig. 3.3. Whereas,
Balfour (www.balfourbeatty.com) explained the improvement of operational performance
and cost effectiveness as one of their strategy, the evaluation of this process can be carried
out using Porters 3 generic strategies as seen in fig. 4.1 and explained in table 4.1
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Porter’s Generic competitive strategy
FIGURE 4.1: Three Generic competitive strategies
Source: understanding strategic management, Henry, A. 2011
Table 4.1
Differentiation
This involves the ability to provide products or
services that seems unique to your customers. For
instance, Balfour aim of constructing efficient-scale
facilities and being able to deliver infrastructure
solutions that are of better value and quality than
their rivals. The differentiation approach is applicable
in Balfour; its benefits will underpin the threats of
new entrants, competitive rivalry and threat of
substitute products.
Overall cost leadership
This is a process of delivering great service at the
lowest price and yet outperforms your rivals; it
provides influential cost leadership in the industry for
an organization which also allows them to make
profit. Example is ASDA and Morrison in the United
Kingdom supermarket sector. This approach is in
progress
at
Balfour
as
explained
in
(www.balfourbeatty.com); they already practise some
of the characteristics mentioned by Henry example
includes tight cost and overhead control, cost
minimization in areas like sales and services, among
others. However, the benefit of this approach in
relative to Porters 5 forces is that it empowers the
organization against it suppliers and customers.
In Porters generic strategy, cost leadership and differentiation falls under competitive
advantage. Porter also explained the different approaches to them as the competitive scope
which consists of the industry wide/broader approach or the particular segment focus which
narrows the strategy formulation to a particular market or service. Most organizations like
Balfour might choose to adopt the two competitive approaches as seen above and yet gain
superior competitive advantage against their rivals. However, Henry explained the generic
strategy as an outside in approach with focus on market positioning but also mentioned
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other foams of strategy formulation at the business level which gives an inside out
perspective. Example: Resource based approach.
Resource based approach
As shown in fig.3.5 above, organisations might choose to adopt this approach by
following the patterns as explained by Grant (1991). Firstly, organizations need to identify
its resources, strengths and weaknesses in its competitive environment. Secondly, they will
need to identify organizations capabilities and ways to make it more effective and efficient.
Third, evaluate its potential for sustainable competitive advantage and return on capital
employed. The last will be to choose a strategy that provides profitable utilisation of the
organizations resources and capabilities in relative to its strengths and opportunities. Grant
explained that for this processes to occur efficiently and effectively, the organisations has to
be aware of the relationship within them.
4.1.3 Corporate-level strategy
The corporate level strategy decides on various business directions suitable for the
company. Lynch explained that it consists of “the strategic decisions that lead companies to
diversify from one business into other business areas, either related or unrelated.” To
illustrate, Balfour started over 100 years ago as a general and electric engineering
contractors before venturing into civil engineering contracts among other business today.
That can be seen as a corporate strategy, so as to enable organization fulfil their objective.
In formulating a corporate strategy, process and factors such as growth strategies,
diversification, portfolio analysis, corporate parenting will have to be evaluated...
Growth Strategy
FIGURE 4.2: Ansoff’s growth vector matrix
Source: Corporate Strategy. Ansoff, H.I (1965)
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Above in fig.4.2 is the Ansoff’s growth vector matrix, a tool for evaluating the growth
strategy. Ansoff explained that organizations ability to grow might be considered in relative
to his four different strategic approach above which will be explained in table 4.2 below.
Table 4.2
Market Penetration
This process consists of the utilization of existing
products to increase market share in an existing
market. As explained by Henry, it largely relies on
organizations resources and capabilities to improve
its products and services in other to attract new
customers. However, this strategy operates smoothly
in growing markets compared to matured markets
such as construction industry in U.K
Product Development
This is an approach of developing new products to sell
in your existing market. Henry stressed the
importance of innovation and continual development
within an in industry as the key factor. However,
organizations need to constantly monitor their
customer’s priority to pull this off as it’s not
guaranteed in most markets.
Market Development
Unlike the previous, this involves entering new
market with your existing product. An illustration is,
Balfour moving into a new geographical zone like
Nigeria with the same products they offer in U.K. but
maybe with slight adjustment to fit the
environmental difference.
Diversification
Henry explained this as the development of new
product for new market. It also comes with a great
risk because the organization lacks proper knowledge
if the diversification is unrelated.
Portfolio Analysis
Henry explained the portfolio as “simply the different business units that an organization
possesses.” The portfolio analysis helps organizations to determine the most reclusive
business unit to invest in and the cash cows to divest and maintain overall corporate
performance. The BCG growth share matrix as shown in fig.4.3 can be used for this analysis.
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Figure 4.3: The BCG matrix
Source: Strategy and the business portfolio, Headley, B. (1977)
Corporate parenting
This in some way deals with the whole idea of corporate level strategy. It helps
determine which business ventures to invest in. Corporate parenting helps business in value
creation, as explained by Campbell et al (2002).
4.2 Strategy Evaluation
Having outlined the various strategies applicable to Balfour, it is necessary to evaluate
and select the most appropriate in relation to organizations resources and capabilities
before implementation stage. Although Henry explained a third level of strategy
formulation which is not discussed on this report wholly because the focus is on business
and cooperate level, the following factors should be considered when evaluating the three
levels.
1. Suitability
2. Feasibility
3. Acceptability
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5
Strategy Implementation
Previously in this report, the strategic analysis and formulation processes has been
explained, this last stage is the implementation stage which evaluates the strategy
formulated and considers the necessary factors which might affect the implementation. As
explained by Henry, those factors might differ depending on the organisational structures,
leadership, corporate governance and stakeholder analysis. These factors will be discussed
in detail below.
5.1
Organizational Structure, process and system
Despite how suitable, feasible or acceptable a strategy might appear, the organizations
structure and system accounts to its effectiveness. The strategy can either force change on
the organization or suit the available structure. That’s why strategy evaluation is important.
As explained by Henry (2011, p.314), Organizations structure is concerned with “division of
labour into specialized tasks and coordination between these tasks.” Furthermore,
Organizations might choose to adopt a structure which suits their objectives and core
activities and implement a strategy that suits them best. Alternatively, Chandler (1962)
explained that “structure follows strategy” as shown in fig.5.1. In conclusion, the two are
interconnected and contributes in organizations effectiveness.
FIGURE 5.1: Strategy and Structure
Source: Strategy and Structure, Chandler, A. (1962)
The various types of structure include Entrepreneurial structure, Functional structure,
Divisional structure, Matrix structure and Network structure.
Network structure
Implementing a business strategy judging by chandler’s explanation of “structure follows
strategy” in Balfour for instance, the organization might consider the network structure,
matrix or divisional structure as it looks to combat the rapid change within its competitive
environment. Example; implementing Porters 3 generic strategy like cost leadership
method, the network structure might provide a realistic view in meeting objectives like tight
control of overhead cost and minimization of cost in areas such as delivery by outsourcing
various activities which are not core like Human resource management, distribution and
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manufacturing of materials and yet meet its objective of constructing efficient scale
facilities.
Matrix structure
The implementation of corporate level strategy like Ansoff growth strategy (product
development), the matrix structure can be seen as an approach for developing a new
product to sell in an existing market by the proper combination of staffs from various
department with different skill set to work and accomplish a common goal whilst reporting
to their line managers also. It gives organisations the ability to multi task and encourages
team work. It sole purpose is to successful carryout team projects in an organization. An
illustration: if Andrew McNaughton, C.E.O of Balfour Beatty and board of directors decides
to produce a new product (A) to sell in an existing market, the relative process might be a
resemblance of table 5.1 below.
Table 5.1
POSITIONS
C.E.O/BOARD OF
DIRECTORS
PRODUCTION
DEPARTMENT
STAFF
FINANCE
DEPARTMENT
STAFF
MARKETING
DEPARTMENT
STAFF
PROJECT
MANAGER
FUNCTIONS
Decides on a new product or service.(Product A)
Focuses on the production of product A.
Plans budgets and costs of product A.
Researches on the market approach and methods to deliver product A to
the market
Oversees the entire process of project A sees to the effective outcome.
Despite the chosen strategy for any organization as explained by Ghoshal and Bartlett
(1995), there is need for organizational process to be understood and its importance over
structure. In effect, it will ensure proper coordination of activities of the organizational
structure and implementation of organizations strategy. The processes identified by
Ghoshal and Bartlett include:
1. Entrepreneurial process
2. Competence-building process
3. Renewal process
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The importance of strategic control systems and strategic change cannot be over looked
in strategy implementation. Lynch explained that strategic changes are important for
monitoring how strategies are implemented. Furthermore, Henry explained that these
changes either evolutional or revolution is necessary so as to ensure stability within the
organizational resources and capabilities in its turbulence environment. In doing this,
organizations can tackle the crisis of strategy implementation. Also, Goold and Quinn (1990)
suggest the following reasons for the establishing of control systems.
•
•
•
Co-ordinate activities of members
Motivate managers in archiving agreed objectives
Help senior managers know when to step in and intervene in the decisions of their unit
managers.
Below in fig. 5.2 are the approaches to strategic controls which can be utilized by
Balfour.
FIGURE 5.2: Approaches to strategic controls in different sort of businesses
Source: The Paradox of strategic controls. Strategic Management Journal, Goold et al, 1990
5.2
Leadership and the learning organization
Strategy implementation process is a decision for the highest level of an organization.
That’s why leadership is important. The approach taken in the implementation often
depends on the style of leadership or management in the organization. According to Mullins
(2010) leadership is a central feature of organizational performance and its effectiveness is
determined by the relationship with other people. The C.E.O position at Balfour is by
appointment by the board and his role is to oversee the objectives of the company over a
period of years. His motivation approach towards his employees determines to an extent
their level of productivity which will impact on the company’s progress and sustainability of
their culture.
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Furthermore, an organizations culture is also crucial to strategy implementation.
Balfour (www.balfourbeatty) explains that they tend to grow and develop their operational
performance in all aspects. As thus, they can be classified as a learning organization which
according to Senge (1990) is “an organization which facilitates the learning of all its
members and continuously transform itself.” In regards to strategy implementation, if an
organization for instance is an adaptive learning organization, the chance of a successful
strategy implementation is greater due to their culture.
5.3
Corporate Governance
Corporate governance is defined as “the way in which corporations are made responsive
to the rights of their stake holders” according to Henry (2011, p.392). Balfour as a
construction company across many countries has to consider the various laws governing the
industry in each geographical zone while implementing a business/corporate strategy.
Furthermore, Cadbury (2002) explained corporate governance as the way in which
organizations are directed and controlled. Corporate governance oversees actions regarded
as the shareholder approach such as excessive executive pays and prevention of loans to
executives (Sarbanes-Oxley Act, 2002)
5.4
Stake holder analysis
Organizations need to analyze the impacts of strategy on its stakeholders before the
implementation. Balfour has various bodies also known as stake holders both inside and
outside which impacts on the company and they include customers, supplies, employees,
government, shareholders, and the local community. Stake holder analysis will help identify
the most relevant stakeholder and consider their priorities while implementing strategy.
6
Conclusion
Balfour Beatty (www.balfourbetty.com) explained that their strategies are designed to
fit into four major elements, which are to grow in new geographies and market sector,
deliver greater value to clients, improve operational performance and cost effectiveness
and continue to show leadership in values and behaviour. In further years to come, these
strategy processes and factors as seen in this report will aid them in continual growth and
market leadership.
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References
Ansoff, H.I (1965). Corporate Strategy. McGraw-Hill, New York. Cited in Henry, A.E. (2011)
Cadbury, A. (2002) Corporate Governance and Chairmanship: A personal View. Oxford University Press, Oxford.
Cited in Henry, A.E. (2011)
Campbell, D., Stonehouse, G. and Houston, B.O (2002). Business Strategy: An introduction. ButterworthHeinemann
Chandler, A.D. (1962). Strategy and Structure cited in Henry A.E. (2011)
Ghoshal, S. and Bartlett, C.A. (1995). Changing the role of top management: beyond structure to processes.
Harvard Business Review. Cited in Henry, A.E. (2011)
Goold, M. and Quinn, J.J (1990). The paradox of strategic controls. Strategic Management Journal Cited in
Henry, A.E. (2011)
Grant, R.M. (1991). The resource based theory of competitive advantage: implications for strategy
formulation. California Management Review cited in Henry, A.E. (2011)
Hedley, B. (1977). Strategy and Portfolio. Long range planning cited in Henry, A.E. (2011)
Henry, A.E. (2011). Understanding Strategic Management. Oxford University Press, New York.
Johnson, G., Scholes, K., and Whittington, R. (2008) Exploring Corporate Strategy. Prentice Hall
Kaplan, R.S and Norton, D.P. (1992) the balanced scorecard – Measures that drive performance. Harvard
Business Review. Cited in Henry, A.E. (2011)
Lynch, R. (2012). Strategic Management. Pearson Education Limited
Markides, C.C (1999). A dynamic view of strategy. Sloan Management Review. Cited in Henry, A.E. (2011)
Mintzberg, H., Ahlstrand, B., and Lampel, J. (2009) Strategy safari: The complete guide through the wilds of
strategic management. Prentice Hall
Mullins, L.J. (2010) Management & Organisational Behaviour. Prentice Hall
Porter, M.E. (1996). What is strategy? Harvard Business Review. Cited in Henry, A.E. (2011)
Porter, M.E (1980). Competitive strategy: Techniques for Analysing industries and competitors. Free Press, New
York. Cited in Henry A.E. (2011)
Porter, M.E (1985). Competitive Advantage. Free Press, New York. Cited in Henry A.E. (2011)
Senge, P.M. (1990). The leader’s new work: building learning organizations. Sloan Management Review. Cited
in Henry, A.E. (2011)
www.balfourbeatty.com accessed 31/01/2014
www.ons.gov.uk accessed 06/12/2013
BBC News accessed 08/01/2014
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Appendix 1
Balfour Beatty is a global infrastructure group that delivers world class services essential to the
development, creation and care of infrastructure assets; from finance and development, through
design and project management to construction and maintenance.
Strategic imperatives
1.
2.
3.
4.
Grow in new geographies and market sectors
Deliver greater value to clients
Improve operational performance and cost effectiveness
Continue to show leadership in values and behaviour
Global expertise
World class solutions, global best practice and knowledge sharing, coupled with international teams.
Key data
£11trn
9%
£11bn
80+
50,000
Estimated value of global infrastructure market in 2013-2017
Average annual growth rate in global infrastructure spend
Revenue generated this year
Presence in over 80 countries
Employees worldwide
Recent history
•
•
•
•
•
•
•
•
•
•
2013 Andrew McNaughton appointed Chief Executive
2012 Group wide Sustainability Month, entitled “Together for Tomorrow”
2011 Acquisition of Howard S. Wright, giving Balfour Beatty the No. 3 position in US general
building
2010 Acquisition of Toronto-based Halsall, as part of Parsons Brinckerhoff
2009 Acquisition of Parsons Brinckerhoff, a global professional services business
2008 Acquisition of GMH’s military housing business (now Balfour Beatty Communities)
2007 Acquisition of Centex Construction (now Balfour Beatty Construction US)
2006 Strategy review identifies new areas of focus
2005 Ian Tyler appointed Chief Executive
2004 Acquisition of 50% stake in Gammon in Hong Kong
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