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ACCT5919 -
Business Risk Management Lecture 3 – Aligning Strategy and Risk What is Strategy? Strategy can be defined as a high-level plan or approach formulated to achieve specific objectives or goals. It involves making deliberate choices and decisions regarding resource allocation, competitive positioning, and actions to effectively navigate an organisation or individual towards a desired outcome. Strategy encompasses a range of activities, including analysing the internal and external environment, setting goals, formulating plans, implementing actions, and evaluating results, all aimed at gaining a competitive advantage and maximising long-term success. Why is Strategy Important? 1. Direction and Focus: Strategy provides a clear direction and purpose for an organisation. It helps align efforts, resources, and activities towards common goals, ensuring that everyone is working towards a shared vision. 2. Competitive Advantage: A well-defined strategy enables organisations to differentiate themselves from competitors and gain a competitive advantage. It helps identify unique value propositions, market positioning, and distinctive capabilities that set them apart. 3. Resource Allocation: Strategy guides the allocation of resources, including financial, human, and technological resources. It ensures that resources are invested in the most effective and efficient manner to achieve desired outcomes. 4. Adaptability: Strategy allows organisations to anticipate and adapt to changes in the business environment. By continuously assessing and adjusting their strategies, organisations can respond to evolving market conditions, customer needs, and technological advancements. . The Strategic Environment FIRM CAPABILITIES • Political/ legal • Economic • Social • Technological • Environmental • Vision • Mission • Values • Culture • Goals • Markets and channels • Customers • Competitors • Suppliers • Assets and resources • People and management • Systems and processes • Capabilities Strategy COMPETITIVE ENVIRONMENT PURPOSE GENERAL ENVIRONMENT External Environment Internal Environment Source : G Kiel 2015 Directors at Work: A Practical Guide for Boards The Strategy Process The strategy process typically involves several steps: 1. Environmental Analysis: Assessing the internal and external environment to understand opportunities, threats, strengths, and weaknesses. This includes analysing market trends, competitors, customer preferences, and the organisation's capabilities. 2. Goal Setting: Defining clear, measurable, and achievable goals that align with the organisation's vision and mission. Goals should be specific, time-bound, and relevant to the overall strategy. 3. Strategy Formulation: Developing a strategic plan based on the analysis and goals. This includes identifying strategic options, evaluating alternatives, and selecting the most appropriate strategies to pursue. The Strategy Process (Cont.) 4. Implementation: Translating the strategic plan into action by allocating resources, assigning responsibilities, and setting performance targets. This involves developing action plans, establishing key performance indicators, and monitoring progress. 5. Evaluation and Control: Continuously monitoring and evaluating the effectiveness of the strategy. This involves tracking performance, gathering feedback, and making necessary adjustments to ensure the strategy remains relevant and effective. . The Strategy Landscape Source Why Do So Many Strategies Fail? - Leaders focus on the parts rather than the whole. by David J. Collis Harvard Business Review (July–August 2021) Strategy Tools - SWOT Strategy Tools - PESTLE Theory - Courtney’s Strategy and Uncertainty Courtney Strategy is a strategic approach proposed by Charles Courtney that focuses on decision-making under conditions of high uncertainty. It recognises that traditional strategic planning methods may not be effective in situations where the future is unpredictable and volatile. Courtney’s Strategy emphasizes adaptability, learning, and flexibility in response to changing circumstances. It suggests that instead of trying to predict and control the future, organisations should focus on building resilience and agility to thrive in uncertain environments. Underestimating uncertainty can lead to implementing the wrong strategies. According to research by the Harvard Business Review (1997) at least half of all strategy problems fall into levels 2 or 3, while most of the rest are generally level 1 problems. The level of uncertainty can have a profound impact on the success of a strategy. Effectively dealing with uncertainty is an important determinant of the success of a strategy. This is the fundamental premise of Courtney’s analysis. Courtney’s Strategy and Uncertainty (Cont.) Key principles of Courtney’s Strategy include: 1. Probe-Sense-Respond: Instead of relying on rigid plans, organisations should take a more iterative and experimental approach. They should conduct small-scale probes or experiments to gather data and insights, sense the implications and patterns that emerge, and respond by adjusting strategies and actions accordingly. 2. Options Thinking: Emphasizes creating a range of strategic options rather than committing to a single course of action. This approach allows for flexibility and the ability to capitalise on opportunities or adapt to changing conditions. 3. Strategic Resilience: Organisations should build resilience by developing the capability to quickly detect and respond to signals of change. This involves continuously scanning the environment, engaging in scenario planning, and being prepared to adjust strategies as needed.