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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.