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Chapter Review
The chapter discusses corporate strategy, with a focus on managing the portfolio. It begins by looking at early perspectives of management, which upheld structure over strategy. There was a need to change the system used, because of complexities in organizations. This led to the development of the matrix systems, which are more flexible and adaptable. It discusses different portfolio models, which include the McKinsey’s MACS Model. The author looks at the MACS valuation method, which differs from other systems by identifying the ability of the parent company to extract additional value from a business unit compared to other potential owners. Strategies of the MACS model include divesting, retaining the business depending on its attractiveness, prioritizing the businesses on the far left of the matrix, and improving the unit. It also looks at the BCG growth share matrix, which has identified four types of business units.
The model has labeled the strategic business units as star, cash cow, question mark and dog. Each type depends on the market growth rate and the relative market share. The stars realize significant income for the business and the cash cows generate a strong cash flow. The units in the question mark matrix have the ability to develop into stars or cash cows, but they only have a small share of the market. Those labeled dogs generate remarkably little profit. The strategy employed depends on the placement of the units. A person will want to invest more to ensure future growth when there are substantial returns in the business. However, being in the dog matrix indicates that one should consider withdrawing from the market.
The chapter looks at the five features that differentiate the planning process. The attributes include a conceptual framework that sorts out the strategic issues that relate to each other. Every person should understand the framework for enhanced efficiency. Another feature is the strategic thinking capability, which is spread throughout the organization. Corporations experience situations where they have competing objectives. There should be a process to sort out this problem, which incorporates tradeoffs by using feedback loops. The fourth feature is the use of a performance review system targeting the managers at the senior level. The fifth attribute is the use of a motivational system that rewards those who apply strategic thinking. The chapter examines factors involved in creating a learning organization. Learning organizations encourage people to become innovative and creative. Organizations should encourage system thinking, they should promote a shared vision, promote and improve team learning, be ready to challenge the norm, and motivate employees to improve on their job knowledge and performance. Organizations have to challenge people to challenge the norm and their mental models in learning organizations. People have to expand the knowledge they have as well as work towards enhancing their capacity if they want to get the results they want.
This chapter includes a discussion on resource-based approach to portfolio management. It examines the pillars of this approach, which include resources, businesses, and systems, structures and processes. Corporations need to have a well thought of and clear vision and the right goals and objectives. These will be essential in creating the company’s competitive advantage. Companies go through four development phases when developing a strategic planning core competency. The first phase is financial planning, which involves the setting of annual budgets based on the organization’s objectives. The second phase is forecast-based planning, which involves determining future needs using historical data. The third phase is externally oriented planning, which utilizes market trends analysis and examines information obtained from customers and competitors in the industry. The fourth phase is strategic management. Strategic planning is a process, which involves developing strategy at corporate and strategic business unit levels.
The chapter highlights the limitations of strategic planning. The changes in top management responsibilities may be a disadvantage to the company. Many people in senior management find it hard to commit themselves to lesser authority once they have delegated power to the lower managers. They will still want to be involved in making decisions about different company matters even though other people have made decisions. The management might want to maintain a stable organization. This can be disadvantageous as it will hinder the implementation of plans made. In addition, it is challenging for the organization to respond to any changes happening if the main agenda of the management is maintaining stability. When forming strategic plans, people depend on hard data and information that can be translated. They do not depend on intuition, derived from many years of experience, and this can affect the organization negatively. Strategic planning is expensive, and it uses many company’s resources such as time. The company incurs different costs associated with different activities such as transportation and materials. Empowering employees at different levels can have negative effects for the organization. It can lead to loss of control of the company itself since there is no direct leadership.