2.7 A Strategic view of performance
Strategy is the pattern of activities followed by an organisation in pursuit of its long-term purposes.
Organisational purposes are often tacit rather than clearly articulated (Comment: In Japan these seem to be clear and help people to move in the right direction.). Common purposes include:
\- profitability (sometimes equal weight to cash-flow)
\- growth
\- shareholder value
\- customer satisfaction
A wider range of stakeholders need to be taken into account which is reflected in the BSC. Organisation need to serve the interests of multiple stakeholder groups simultaneously. Some of these groups might have conflicting objectives.
The Market-based approach to strategy looks at the near environment where companies compete for customers, suppliers, resources and also compete to influence external factors. In the end you want to have a competitive advantage. This is where Porter’s five forces framework comes from which suggests that there are five types of competitive pressure.
1\. Industry competitors (rivalry among existing firms)
2\. Potential entrants (a barrier of entry is important here)
3\. Bargaining power of buyers
4\. Bargaining power of suppliers (if lots of suppliers are there, the buyer can put pressure on them for lowest cost)
5\. Threat of substitute products or services
Porter argues that 1 depends on the importance of 2–5 within your industry. The system can be used to find a sector where an organisation can place itself competitively but it should be remembered that the environment changes over time.
Public-sector organisations can likely better use David McKevitt’s adaptation of the model looking at:
\- Related street-level public organisations
\- Suppliers
\- Professional associations (standards, career ladders)
\- Central government (Politicians, Treasury, Auditors)
\- Client-citizen
All influencing the Street-level public organisation (SLPO)
As the environment is not static, based on the above, your strategy should be changing too (your mission sits above that). In general, all this requires a lot of information flow.
Another approach is the resource-based approach to strategy which focuses on understanding the organisational distinct capabilities in their market with relationships to different stakeholders. In this case, strategy is about choosing among and committing to long-term paths of capability development.
Resources (Human, Tangible, Intangible) enable organisational capabilities and strategy, fed by the industry key success factors, enables a competitive advantage. This competitive advantage has a number of properties:
\- Inimitability
\- Durability
\- Relevance
\- Appropriability
John Kay identified 3 main classes of organisational capabilities that have these characteristics: Innovation, Architecture and Reputation.
Strategy now has to build relevant, inimitable, durable and appropriable capabilities while keeping in mind their environment as well as their total value chain, which tells you what the organisation does and in what order. A different way of doing things might create a notable competitive advantage.
Value chain analysis then looks at:
\- identifying the costs of each activity
\- what factors drive those costs
\- benchmarking
\- understand linkages and horizontal strategy opportunities
This analysis then enables finding where distinctive capabilities are based which give rise of core competencies. This might help in finding out what should be done, and what should be outsourced.
A strategy planning process might then include both the analysis of the near environment, as well as of capabilities and resources to identify alternatives for a new strategy. Normally this happens not very orderly and is only later ordered into a clear plan. In that sense, middle managers are very important as they shape the implementation of a new strategy.