Chapter 06 - Evaluating strategic moves What this chapter...

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Unformatted text preview: Evaluating strategic moves What this chapter is about The viable firm matrix has shown the organisational transition needed to implement strategic actions. That move has to be assessed by: I how well it satisfies the aspirations of stakeholders, and I the resources needed to make it come about. There are two practical strategy tools for those tasks: I congruence analysis, and I resource analysis. Introduction to congruence and resource analysis In Chapter 5, we studied the viable firm matrix and saw .how it is used to differen- tiate between firms (or any other organisation), identify strategic options, and to design the organisation that should be able to implement a chosen strategy. It was stressed that a VFM is an organisational evaluation and design tool. That is, though, only the first step in strategic implementation and we must now address two other aspects. The first is how well the identified strategies or viable strategic options fit with the aspirations of the different stakeholders in the situation. This is called congru- ence analysis. For instance, in the case of Littieworth and T hrupp, the legal firm, Mr Littleworth is near to retirement age while Ms Thrupp is far from it and a strategy that is congruent with his aspirations might not fit at all well with what she wants to achieve. Congruence analysis is highly political (with a small p) as it relates to the prefer- ences, and even the ethical constraints, of the people and groups involved in strategic choices. That is as it should be. Practical strategy is, congruence analysis at its very roots, concerned with bringing about change in a situation, handles the vital and that is fundamentally political. In democratic elections the competing Po'itica' aSPeCtS 0f parties seek to persuade the voters that their proposals for change will change' 1 26 Chapter 6 / Evaluating strategic moves best meet the aspirations of most of the people. Investors in ethical investment funds seek to make money, but prefer not to do so by owning shares in firms that deal in products of which they do not approve; perhaps benefiting from the profits of a tobacco company would not be congruent with their beliefs. Congruence analysis is a vital part of the practical strategy process and cannot be neglected. The second method covered in this chapter deals with the practical details of the resources needed for strategic implementation. It may be that the strategy which emerged from TOWS and led to the identification of a viable firm, or some strategic options which came from the quick use of the VFM (as with the oil consulting firm), will require additional resources of people, machines, money or whatever, or there may be existing resources that will not be needed with the new strategy. Not surprisingly, this is called resource analysis. As with just about everything in this book, the ideas are very simple, but the practice is a little more difficult and is best studied by means of examples and best of all by syndicate work to apply the tool to an interesting problem. Resource analysis deals with the practical detaiis. An example of congruence analysis Background We will use the strategic options for Petroieum Associates Inc. (PAI), the consulting firm discussed in Chapter 5, to illustrate congruence analysis and you will recall that study of PAI's VFM suggested two possibilities. To help you to follow the argu- ment, the plain VFM for PA] is shown again in Table 6.1. One of PAI’s options is the bold one of trying to stay at 03, maintaining their present size and value despite the likely drastic reduction in their existing business. PAl’s owners reasoned that, in order to ‘stay at 03, they needed to try to reach E2, seen as having good solutions to problems outside the oil business. That would require the MS marketing strategy, monitoring both markets to exploit their repu- tation. However, reputation depends on performance so it would be needful to improve their portfolio to C2, a planned and actively managed skill set supported by good training. That posture should lead to A2, a well-respected firm with a good client base in two markets, and (22m2 might reasonably be expected to improve the recruitment position to R2, though some additional actions might also be nec- essary to achieve R2. PAl’s other option is to retrench the business, choosing 0,1 as the objective, a choice that is viable with a posture of C6, R6 or R5, and A4. They could no longer rely on M6 and would have to adopt M4, M3 being too risky. 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Chapter 6 / Evaluating strategic moves The congruence analysis technique PAl’s problem The issue that congruence analysis addresses is how well or badly these options rate against the preferences of the interested parties, and a simple way of handling that is shown in Table 6.2 for PAI’s first, bold, option. The ’from’ and ’to’ definitions from the VFM are listed at the left, and that copy- ing is essential as it ensures that everyone has the same understanding of what is being discussed (we shall consider the practice of congruence analysis after we have explained what it is). One then has as many columns as are needed for the interested parties, or stakeholders. In this case, we have three, respectively for the four people who own PAI, for their 30 employees, and for their existing clients. Including the clients may seem paradoxical, but not all of them want to go in- house, and some might be persuaded not to if they perceive PAI to be a viable business offering good services. The final step is to rate each row in the columns to reflect a perception of how much each party likes or dislikes that aspect. Since these are qualitative assess- ments of preferences, we use a simple scheme of pluses and minuses (rather as was done in Table 4.1 for the relative attractiveness of different strategies vis-a-vis the Mont Fleur scenarios for South Africa). Three pluses mean 'like it very much’, two pluses mean ’like it quite a lot’, and one means ’like it a little’. The scale goes down to three minuses, for the opposite meanings. A blank entry means ’don’t care one way or the other’. Before explaining the plus and minus entries in Table 6.2, we need to make it clear that the assessments are those of the owners of PAI, as it is they who have to decide between the two options. They can judge how well or badly they themselves would like each of the two but they also have the difficult task of assessing {or guessing) the preferences of the employees and the clients. There might, perhaps, be some discreet conversations with the external stakeholders but the owners can hardly go to the employees and say ‘How would you like it if we cut the business back to a small core?’ The answer would be predictable and would trigger a lot more trouble than PAI‘s owners need. Politicians have to make the same kind of judgements about potentially unpopular initiatives, some of which are abandoned because it is perceived that an announce- ment that the government was even thinking about X would be too damaging. In short, only the holders of power can ultimately make the strategic choice but they must take into account other legitimate stakeholders who, if they have different preferences, might make or mar the contemplated decision. Congruence analysis is, of course, highly subjective precisely because it summarises opinions and assessments (or guesses). its advantage is that it forces those assessments to be made clear and it displays them plainly. We will discuss the interpretation of the assessments at the end of the example. First, we need to explain Table 6.2. The first row says that the owners don’t like this option very much as, having struggled to build up the existing business, they do not really want another battle The congruence analysis technique 129 Table 6.2 Congruence analysis for PAl’s first option 02 Aim for some growth in size and value i3a Conscioust chosen, but limited, portfolio with recruitment of people with those skills REl Not easy to recruit and retain good people. Some variation in work quality. Average motivation and pay 02 Aim for some growth in size and value 02 Planned and actively managed portfolio of skills with strong attention to training for skill development R2 Fairly easy to recruit and retain good people. Consistently good work quality. Above average motivaticm A,1 Good reputation but not widely known outside its traditional market M,5 Rely on reputation and contacts to bring in work A2 A well-known and respected firm with a good client base in both market areas M5 Constant monitoring of both markets to exploit established Attractiveness from the perspective of: Owners Employees Existing clients -- reputation to survive (they have done a VFM to assess the strength of the likely competition in other markets). They think that the employees would like the attempt to stay in business, but the clients probably don’t care what PAI’s objectives are. The reasons for the second row’s ratings are that the employees might be quite attracted by the idea of learning new, and portable, skills. The owners do not, therefore, like the idea of a huge and expensive effort that might simply be wasted if the employees take their new skills with them. It is important not to see congru- ence analysis as an exercise in filling in a form, and also to be willing to change assessments after further thought. The owners at first quite like the (jg/C2 transi- tion and rate it +. When they study the employees' preferences, they change their minds and make it — —. Finally in this row, the existing clients might not be happy at the likely loss of attention from PAI. In the third row, everyone likes the idea of good, well-trained people. Work out for yourself the apparent reasons behind the rest of the ratings. After you have done that, and preferably in syndicate discussion, try to put your- self in the shoes of PAl’s owners and make your own assessments of these issues. As we have seen, though, PAI's owners have identified two strategic options (and you may have found another if you did the exercise in Chapter 5), so Table 6.3 is the congruence analysis for retrenching the business. This time, we will explain these illustrative assessments by working down the columns, rather than across the rows. In practical use, you should use both methods as a cross—check on your understanding. 1 30 Chapter 6/ Evaluating strategic moves Table 6.3 Congruence analysis for PAI’s second option To Attractiveness from the perspective of: Owners Employees Existing clients 02 Aim for some growth in 04 A smaller firm, designed to size and value be survivable in difficult and changed circumstances C3 Consciously chosen, but ('26 Small, but unique with limited. portfolio with recruitment world-class skills ++ — a 4 ++ of people with those skills R3 Not easy to recruit and retain RsA core team supplemented by good people. Some variation in extensive use of associates or +++ _ _ _ + work quality. Average motivation REA few highly expert individuals and pay A4 Good reputation but not A 4 Good reputation but not widely known outside its widely known outside its traditional market traditional market M5 Rely on reputation and contacts M4 Careful attention to existing to bring in work customers, some effort at getting new ones In essence, the owners are not too happy with 04, going back to being the small firm they were when they started PAI, they like C6 as they will be able to' practise their own skills instead of having to spend a lot of time on management, and R5,6 avoids all the recruitment trouble. A4 seems to them to be a little restrictive and M 4’s attraction is the positive interaction with the clients. The owners judge that the employees would hate the whole idea, for obvious reasons, but the existing clients might quite like the prospect of dealing with top-quality people and getting some marketing attention. Interpreting the congruence analysis tables We have the results, but what do they mean? How can we interpret them into meaningful actions? On the face of it, one might add up plus and minus ratings and ’calculate’ Don t Eldd the pluses the net effect but a little thought shows that to do so would be pretty and “muses” 93‘ ' 1 th t d ff 1d b- b t d'ff t r t r the wean Emma meaning ess as e ra e-o 5 won e e ween very 1 eren ac ors. or instance, in Table 6.2 there are two minuses against 02, an objective, but they do not cancel out two pluses against R2, a human resource issue. The preferred approach is the gestalt, whole-pattern, viewpoint of the web of fac- tors that we used with field anomaly relaxation in Chapter 3. To remind Aim foragestalt you, gestalt means 'perception of a pattern or structure possessing quali- apprec'at'on 0f the ties as a whole that cannot be described merely as a sum of its parts’. In whole pattern. . other words, one has to look at a congruence analysrs table as a whole. Congruence analysis in practice 131 For Table 6.2 the picture that emerges, from the owners’ standpoint, is that while there are things that would be nice if they happened (R2 and A2), the discontents are too great (02 and C2) and there is little to maintain the support of the existing clients. Table 6.3, on the other hand, has the drawback that it takes the owners back to square one, but that is outweighed by its other attractions and the possibil— ity of continued business with at least some of the existing clients. Retrenching the business seems, on balance, to be the better preferred of the two options. Although the plus and minus ratings are the judgements of the owners, it is worth looking at the implications of the employees’ presumed preferences, which are that retrenchment is deeply unattractive to them, but there are things that they might like about the bold option. Perhaps, then, there is a third The 100‘s for Practical , _ _ _ . . . strategy can suggest possrbility. a management buy-out by the employees. It 1.5 a characteristlc an option that had of many of these tools for practical strategy that they sometimes suggest a previously been possible strategic action that had been overlooked until then; they might overlooked. equally well be called tools for strategic imagination. Congruence analysis in practice There are two aspects of the use of congruence analysis; the first is some practical tips and the second is its subtleties. The first practical point is that the people who should do it are normally the focus group monitoring the practical strategy process. The second is that one has to think carefully about which stakeholders to include. Some obvious possibilities are the management group, employees, customers, shareholders, suppliers and, where it is relevant, the regulatory authority (where an authority exists it would probably be very unwise to exclude it!). It is usually a good idea to write a short explanation of why an interested party has been included and some statement about that entity’s assumed preferences. It is tempting to have too many stake- holders, but more than about four or five makes it hard to use the gestalt appreciation. The upper limit for gestalt is seven in FAR but there the appreciation is of a one-dimensional configuration of items, one from each row. in congruence analysis, the table is two-dimensional and it has to be appreciated as a whole. Congruence analysis is much more subtle than it looks. At first sight it might be dismissed as being no more than a set of guesses (we deliberately used that word earlier), and therefore of no value. However, consider the alternative and imagine PAl’s owners trying to decide what they would prefer to do and how that might be influenced by the preferences of other parties (and this issue of Congrufince a_nalYSiS i preferences cannot be ignored in practical strategy). It is easy to see that, hmaa‘lge: $22324: to lacking the framework which congruence analysis provides, the discus- debate about sion might rapidly degenerate into an argument, and perhaps a very preferences. heated one. On the other hand, if the congruence analysis concept is used not only with imagination but also with common sense, reasoned debate becomes possible about why one person rates a factor as two pluses while the rest of the group sees it as a minus. The issue might be resolved by a vote but it would be far more fruitful to explore the reasons for the extreme views. That, you will recall, was the essence of the Delphi method discussed in Chapter 3 and congru- I 132 Chapter 6/ Evaluating strategic moves ence analysis is best seen as a Delphic approach to preference evaluation. In short, its main value is in being a good way to turn an argument into a discussion. That is probably true of many of the techniques described in this book. Resource analysis Introduction Resource analysis deals with the gaps between the resources available at present and those that would be needed to implement a proposed strategy. The collection of gaps is an indicator of the ease or difficulty of implementing a strategic option and should, therefore, affect the final choice of what is to be done. In this section we will study an example of resource analysis, think about how its results are inter- preted, and look at various ways of measuring gaps. Later in the chapter we will study Herrington-Jones’s resource analysis. The key to understanding resource analysis is that the resources are not just the obvious things such as machines, financial reserves, or numbers of :Resm-"Fes’ ‘3?" people. ’Resources’ also includes apparent intangibles such as the corpo- Include intangibles . . . such as organisational rate culture, attention to customers and, indeed, anything that makes the culture, business, or other organisation, viable; a resource gap of too little atten- tion to customers may be as critical to success as too few machines, and filling a resource gap does not necessarily cost money. Of course, some resources might be in surplus: too many machines, perhaps. It can also sometimes happen in resource analysis that the gaps between the cur- rent and the proposed firms are so large, or so numerous, that they cannot be filled. This means that an option, which appeared to be viable in the viable firm matrix, is not, in practical terms, viable at all. The reason for this apparent contradiction is that the VFM finds viable combinations of written definitions: such-and-such a com- bination of marketing, human resources and so on appears to be viable when expressed in words but might turn out not to be so when examined in detailed resource requirement terms. Perhaps the VFM should be called the apparently viable firm matrix, but we will stick with the simpler term as the true significance of the VFM is that it points attention to possibilities that seem to be worth detailed analy- sis and does not waste time and effort on obvious impossibilities. An example of resource analysis Let us stay with the problems of PAI but we will imagine not only that it has beCOme clear to a group of the leading employees (we will call them the Group) that the owners are thinking of cutting the business back to a small core, in which case all the employees will lose their jobs, but also that someone has leaked the confidential VFM to the Group. Studying the VFM leads the Group to believe that with more dynamic and less complacent management the bold strategy is viable and they approach the owners with a plan to buy the business: a so-called manage- ment buy-out, or MBO. Resource analysis We shall now study the problem from the Group’s point of view as they start to negotiate the price, and other terms, such as an agreement to prevent the owners from competing with PAI within, say, five years. It is obvious that the resources the Group will need to invest, especially the monetary ones, will affect the price they can afford to pay for the business, and the scale of any other problems is an indica- tor of the business risks they will face. if the likely risks turn out to be too great, they might feel that it would be wise to withdraw from the MBO negotiations and look for other jobs. Resource analysis is intended to guide them to the answers to those questions (it is a sad fact that many MBOs do fail and maybe resource analy- sis could have avoided some of those disasters). To explain resource analysis we will start with a fragment of the analysis, shown in Table 6.4 for the gaps between C3 and C2 (in Tables 6.4 and 6.5 the text 133 definitions of factors such as C3 and C2 have been abbreviated to make Break resources down the tables fit the pages). The Group feels that C, as a category, is too broad into sub-categories, and therefore breaks it down into four sub—categories. (The blank row hm ON'V If it helps YOU containing '???’ is there to encourage you to add extra categories if you to th'nk‘ wish. You may, of course, feel that some of these sub-categories are not suitable. Perhaps recruitment brochures are too trivial to worry about. As always in this book, you are challenged to do your own analysis.) Each sub-category is rated on a scale from 0 to 4, in which 0 means non—existent now, or irrelevant in the proposed strategy, 1 means poor, 2 means average, 3 is above average and 4 corresponds to excellent. ‘Average’, and the others, mean rela- tive to general standards in similar or competing businesses.“ (We shall discuss other definition systems when we have completed this example.) The gaps in the right-hand column are easy to interpret, for instance, ‘Our brochures need some improvement’, 'We have ignored recruitment in the past, but Table 6.4 A fragment from the M30 resource analysis n (33 Limited portfolio, 62 Managed portfolio recruit for those skills with good training Availability of recruitment brochures Activity in graduate recruitment Provision of training Flesearch into new techniques *Obviously, what might be excellent for a consultancy in the Republic of Cataclysmia, mentioned in Chapter 1, could be grossly inadequate in London, New York or Melbourne. 134 Chapter 6/ Evaluating strategic moves now we need to be more active than most other firms’, ‘We have to get our train— tng up to better than the average for similar consultancies’. All of these sub-categories will involve some expenditure but the training row has been emphasised as it will involve substantial expense. If the Group have their wits about them they will know what the better firms do; they have to match that, and they should be able to estimate the cost of doing so. The total of the gaps in Table 6.4 is 9, and although that number is fairly mean- ingless in itself because it is the sum of different things, it does show that the C category will require some serious management attention from the Group, and the spending of some money, if the MEG goes ahead. The end result for all the categories is shown in Table 6.5. Three sub-categories are now in bold type to show that they are likely to be expensive; estimated costs could be pencilled in against those rows. Three more items have gaps of 3, to show that they will need serious management attention, and a further three have gaps of 2, suggesting causes for concern. There are some gaps of 1, which might denote aspects that cannot be ignored but are not high priority. Finally, two items show no gaps. How might the Group interpret these results? The significantly costly items might provide a basis for rational negotiation with the owners on the Resource ana'VSis is a price to be paid for the business. The management attention sub-cate- cross—check on the VFM thinking. Make sure that scales are not misleading. gories will show them what they are taking on. The overall gestalt appreciation is a more accurate picture of the viability of the MBO than the apparent viability from the VFM. Resource analysis is a cross-check on the VFM and the two approaches go hand-in-hand. What should the Group decide to do? Is the M130 going to work or are the man— agement problems so large that it will be impossible to deal with them? Bearing in mind that these people will have to borrow heavily and probably put their homes on the line, are the financial risks reasonable or are they too great? The final judge- ment will be for them to make, but it will have been made on the basis of comprehensive thought and coherent analysis, and that is the main value of resource analysis. You should now do a resource analysis for the owners’ other option of retrench- ing the business. The importance of definitions On the O = non-existent to 4 = excellent scale one has to be careful about defini- tions. For example, for a small firm, production capacity might, on a superficial view, be rated at 4, excellent, because the firm has just the right amount of capac— ity to handle a small volume of business. But suppose that the strategy being analysed called for a major expansion of Output. That requires a 4 in production capacity, which the firm already seems to have, but it is obvious that the two 45 are not the same thing: the scale seems to be misleading. The key to the apparent dilemma is to define the sub-category as “ability to handle production volume’. For the small firm, that is 1, poor, because it can only handle small volumes. The expansion strategy calls for 4, so the scale is now working properly. { 7?? Fig Not easy to recruit. RE Fairl'y easy to recruit Average motivation good people. Above and pay average motivation Pay and conditions 2 3 Working environment 3 3 Quality and modernity of IT 3 3 Attendance at professional conferences 2 3 Career management 0 3 l 3 ?7? ‘ Resource analysis 135 Table 6.5 Complete resource analysis for management buy-out Sub-category From To Resource gaps C}3 Limited portfolio, C2 Managed portfolio recruit for those skills with good training Availability of recruitment brochures 1 Activity in graduate recruitment 0 Provision of training 1 Research into new techniques 0 ‘ both markets contacts bring in work A4 Good reputation in A2 Good client base traditional market in both market areas Attendance at industry gatherings 1 3 2 Publicity in and articles in trade journals 1 3 2 ??? ‘ M6 Reputation and M5 Monitoring of Skills in preparing and presenting proposals 2 Market research 0 Client monitoring and after-care Attendance at trade fairs '??? 136 Chapter 6 / Evaluating strategic moves You need to keep this kind of consideration in mind if resource analysis is not to lead you astray. Other definition systems for resource analysis Tables 6.4 and 6.5 used simple definitions for the scale from 0 to 4, ranging from non-existent to excellent, relative to general standards in the industry concerned. That is easy to use, but what other systems exist for defining the meanings of resource gaps? Table 6.6 shows four possibilities, all based on scale values of 0 to 4: 1. The first is the system we have already used: 'relative to others’. 2. The second, comparative, scale has two columns. The left hand is the availability of the current resources and the right hand is the resources required for the pro- posed strategy. The advantage of this scale is that it does not require comparisons with other firms or organisations in the same business area: some- times no fair comparison can be drawn, as in the case of public monopolies or the Royal National Lifeboat Institution. The 'comparative’ system of definitions is quite subtle as it works in two ways. On the one hand, if X is now a major strength and is also critical to future strategic success, then there is no problem. Similarly, if there are currently major weaknesses in X but X is not really impor- tant to the proposed strategy then, again, there is no gap. What, however, happens when X is currently rated at 1 but should be 4 in the future? It is the left-hand column that provides the answer: something that is now a major weakness, quality control, perhaps, is critical to success in the proposed strategy, and it should not be too hard to work out what needs to be done to achieve that. The TOWS technique might be helpful in doing so. 3. The third column is fairly self-explanatory, though you might want to qualify the definitions so that ’occasional’ means ‘twice a year', or whatever. 4. The last column has some purely illustrative financial figures which need to be changed to suit the problem; what is major investment for Joe, a self-employed builder, might not even rate as petty cash for Harrington-Jones. It is important to realise that it is the numbers that are used in the resource analy- sis and that the words in Table 6.6 serve only to give meanings to those numbers. It is obvious that one sub-category might be rated on a different system from another and Table 6.7 is a simple example of how that might be done. If differing systems are used it is usually a good idea to state explicitly which one applies in each case (which system of definitions would you use for research into new tech- niques?) but it is up to you to judge whether the complication of summing the gaps in different columns (on the right-hand side) is beneficial. Does the added detail help, or does it confuse the gestalt appreciation? Perhaps emphasising some of the rows is all that is needed. The answer will depend on the circumstances and one's personal style of thinking, but try to avoid an illusory concept that more detail means increased ’accuracy’. There is no virtue in complexity for its own sake. Table 6.6 Some alternative definition systems for resource analysis Scale value Relative to general standards Non-existent Or not relevant Significance: current situation relative to proposed strategy Current situation Non-existent Significance for proposed strategy Not relevant Resource analysis Senior management attention required None — runs itself Monetary implications Petty cash (£1,000/year) Major weaknesses 1 2 4 Average Some weaknesses Not really important Nice to have, but not critical Rare Occasional Routine maintenance (£5,000/year) Regular updating of facilities (£100,000/year) Above average Excellent Few deficiencies Major strength Serious problems if not achieved. but not fatal to success Frequent Moderate investment (£500,000 every few years) Critical to success Constant A variant of resource analysis for a particular need Maior investment (95 million as one—off) 137 Do not assume that these four categories will cater for all resource analysis prob- lems — you should be prepared to develop (and justify) your own scale when necessary; Colonel Brian Hall of the Australian army has kindly provided an interesting example of the creation of a variant on resource analysis to meet a particular need. The topic chosen by the team of which Hall was a member was strategies to ensure that the relevance of the Snowy Mountains Hydroelectric System (SMHES) could be maintained to the year 2030. Having applied the full ACTIFELD methodology, the team encountered an obvious difficulty when it came to resource analysis as, quite clearly, the SMHES is unique and its sub-category performances cannot be compared to the general standards in its industry, as we did with PAI. (There are, of course, vast hydroelectric systems in the USA, Russia, Argentina and elsewhere but they are not comparable for all manner of reasons.) The concept evolved by the team (after some debate) is shown in Table 6.8, though that table is only a small fragment of the full SMHES resource analysis. The first four columns are the standard resource analysis format with the usual cate- gories, sub-categories and gaps rated on the ‘significance’ scale from Table 6.6. Create your own rating system if necessary. 138 Chapter 6 / Evaluating strategic moves Table 6.7 An illustration of multiple systems Sub-category Scale From To Management Money Other attention gap gaps gaps __—l_.____7 03 c2 Limited Managed portfolio, portfolio with recruit for good training those skills Availability of Relative t 2 t recruitment brochures Activity in Management 0 3 3 graduate recruitment Provision of Money 1 3 2 training (or X million) Provision of Management 1 3 2 training Research into ’2 ? ? Which gap? new techniques 17?? Table 6.8 A dual-rating system (adapted from Hall) Sub-category Storage capacity Extent of distribution Supplying water Efficiency of water management 4 EL1 1 14 Generating capacity Suppiying hydro-electricity Role in distribution management 6 Skill in RED management Research and development Comprehensiveness of R&D investment plan 4 8 Resource analysis The variant proposed by Hall is in the last three columns and involved two steps. The first is to treat the gap as having three components: 1. its magnitude, that is, the difference between the two numerical ratings in a given row 2. the inherent problems of closing that gap, defined as E for easy, M for moderate and D for difficult 3. the resources (of whatever type) needed to close the gap, defined as L for low, M for medium, and H for high. To understand this, consider the first sub-category: increasing storage capacity. The gap is 1 point on the scale, but it is very difficult to obtain the relevant plan- ning permission and to solve the engineering design problems, and it is also certain to be very costly. That gives a rating of DHl, the H being in bold type to show that is a financial component. On the other hand, the water management sub-category is rated as ELl; the task is not very difficult and should not require much managerial effort. The second part of this variant is shown in the last two columns of Table 6.8. it assigns numbers so that E: l, M:2, and D or H=3. These are multiplied together and then multiplied by the numerical difference to get the final score, so that DHl, for instance, is translated as (D=3)*(H=3)*1 =9. Finally, the sub-category scores are summed in the last column. Thus, using this very simple and clear approach, a gestalt appreciation of the whole problem is easy to make. In broad terms, and for this fragment of the analysis, solving the water supply problem is about as big a task as dealing with the other two combined. The cleverness of this idea is that it allows for non-linear efiects. It may, and prob- ably will, be much harder to close a gap from 3 to 4 than to close a gap between i and 2. It might be simple to close a gap of 1 point but rather hard to close one of 2 points. Multiplying by the number of points then gives a feel for the overall mag- nitude of each task. it is easy to see how this system could be extended, and some possibilities are to: I extend the scale to allow for Very Difficult, Very Large resources, and so on I change the weightings so that E stays at 1, but M=3, D=9 or whatever I weight the categories so that if, say, supplying water is believed to be much more important than research and development, then the category totals could be multiplied by, say, 3 and 1. The first total would become 42 and the second would stay at 8. The effect A the numbers 42 and 8 — is a blend of the magnitude of each task and its importance. Depending on the situation, that may be a helpful indication of its true significance or it may confuse two different things. It is always important not to overcon'iplicate scoring systems in an attempt to make them more “Scientific”. We shall now see how congruence analysis and resource analysis can be applied to Herrington—Jones. 139 14D Chapter 6 / Evaluating strategic moves Application to Harrington-Jones and Co Herringt‘on-Jones’s strategy You will recall from Chapter 5 that Herrington-Jones’s strategy had three main components: 1. European expansion: acquire retail brands in mature European markets and develop retail brands in new European markets, with the aim of capitalising on learning scale efficiencies. 2. E-commerce: invest in infrastructure, exploit gains from first mover advantages in efficient supply chain management, position to provide competition both on cost and tailored value-added services. 3. Lifestyle: build up a responsive and detailed customer database to monitor changing customer needs and take advantage of segmentation of the consumer market to cherry-pick attractive segments. Augment the focus on value by pro- viding ’more than just a mere shopping experience'. Herrington-Jones’s congruence analysis You are challenged to put yourself into the shoes of Herrington-Jones’s senior managers trying to deduce how these strategic components will ‘fit’ the aspirations and objectives of different stakeholders. Some obvious points of view are those of the senior managers themselves, the board of directors, middle managers, other employees, the financial markets, existing customers, suppliers and, perhaps, the Competition Commission. Would you be wise to try to consider all 'of these? If not, which might you decide to ignore, and why? What might be the aspirations of each of the groups you decide to include? In practical congruence analysis it is essential to write a short pen-picture of a typical member of each group so as to ensure that the people doing the analysis have a shared view of what they are analysing. It will be misleading and pointless simply to put down some plus and minus signs without any real thought. This exercise is best done in a group, being careful to take the Delphi approach of debating the reasons for extreme views. That will give practice in both congru- ence analysis and Delphi. Herrington-Jones’s resource analysis A resource analysis for Harrington-Jones appears in Table 6.9. This would now be a good point at which to review the Harrington-Jones case study from Chapter 4, TOWS, and Chapter 5, the VFM, to draw all these threads together. On review, you may disagree with the assessments and with the matrices. That is perfectly legitimate and you should feel free to revise them. Case study: Application to Harrington-Jones and Co Table 6.9 Herrington-Jones's resource analysis Sub-category Sector From: B3 - Established. Second tier with some negative connotations ‘ Corporate visibility ‘ Positive association Trust Perception of quality 141 B, — Leader. High brand equity. Leader in sector and ability to stretch Perception of value Marketing skills '3 Knowledge of market Growth 03 — Organic. Of — Rapid. objective Growth through reinvestment Growth through acquisition of retained profits and rollout of new outlets in EU Availability of capital 1 Acquisition strategy 3 Knowledge of foreign markets 3 Purchasing N3 - Limited. NT — Expand. network Low buyer power with Scale allows leading price low margins negotiations with manufacturer's S |' l t' h‘ upp ier rea ions ips Partner relationships 2 Understanding of foreign market 3 Contacts within industry 3 E — E2 - Adopt. E, - Lead. commerce Early adoption of new IT and Proactive E-commerce strategy distribution technology and development of new technology Ability to adapt 4 2 2 Capital investment in infrastructure 2 4 2 Management commitment 3 4 ‘l Trained staff 4 2 2 Understanding of new technology 2 4 2 Channel 02 — Expand. C, — Drastic. Existing channels with several New distribution channel like store formats home delivery or depots Management commitment ‘ 4 4 0 Capital investment in infrastructure ‘ 2 4 2 Understanding of consumer ‘ 3 4 1 Understanding of new technology ‘ 3 4 1 142 Chapter 6 / Evaluating strategic moves Chapter summary We have now examined two more techniques from the practical strategy toolbox_ They follow from the viable firm matrix, which generated a description of a viable firm that ought to be able to implement actions from TOWS, or other suggested strategies. The purpose of congruence and resource analysis is to establish whether or not the business that seemed to be viable from the text definitions of the VFM is really able to survive in the cold light of people‘s preferences and objectives, and the harsh reality of resource needs. Congruence analysis is a checklist of a more—or-less-objective strategy against human values and preferences. We commented on the first page of this chapter that bringing about change of any sort, which is what the tools for practical strat- egy aim to do, is an intensely political act, and the best strategic analysis in the world will be futile if it ignores the politics. Congruence analysis is an attempt to evaluate the political, or preferential, factors in an organised, systematic way intended to make as sure as one can that nothing significant, and no relevant interest group, has been ignored. It is a checklist for the human factors. Of course, its assessments are themselves subjective — they cannot be otherwise — but any hope of implementing a strategy is very likely to be forlorn if congruence analysis is omitted. Resource analysis is also a checklist process. One of its virtues is that it forces people to identify clearly what has to be done — the sub-categories — but does not list every conceivable factor. Make judgements about what is trivial and what is significant A second virtue is that the rating systems, simple though they are, again compel assessments to be made about the ease or difficulty of coping with the issues. Resource analysis cannot, however, prevent wishful thinking that some problem is easy to solve when, in fact, it is very hard. The best protection against that is the Delphi debate, mentioned under congruence analysis, which explores the extreme judgements,- Joan thinks X is easy but Fred feels that it is hard, so why do they hold those opinions? Like congruence analysis, resource analysis should be a good way of clarifying the issues and turning what could otherwise be a heated argu- ment into a productive discussion. And finally, it may happen that congruence or resource analysis shows that the apparently viable firm is not acceptable to interest groups or that its resource demands cannot be met. In such a case, one loops back to the VFM to find another configuration that will work, or to TOWS for less demanding strategies and actions. For instance, in Chapter 4 the TOWS analysis for the unmanned ground vehicle (UGV) suggested that the development of a demonstrator vehicle might be a good idea. For that project, we might omit the VFM step and go straight to congruence and resource analysis. If the conclusions were that the demonstrator vehicle was likely to be a step too soon from the standpoint of a particular stakeholder, or that the resource demands were excessive, one might revisit TOWS and deduce that a more practical step was to hold a conference to explore the issues more fully. ...
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