MT1022 Managing & Leading Strategic Change

Lecture 1 Prof. S Hotho Dundee Business School

HP Strips Some Gears With Strategic Shift

Hewlett-Packard Chairman Ray Lane Defends Strategy Shift at the 2011 InformationWeek 500 Conference Lane acknowledges confusion in market following its announcement to consider spinning off PC business and spotlights HP's focus on enterprise information technology new CEO is eyeing a shift towards the more profitable software, networking and storage businesses. Leo Apotheker clearly emulating IBM

Strategic Change

November 1998

This is the beginning of the number one transport company in the world R Eaton, Chief Executive, Chrysler AG at the time Chrysler was considered to be worth 18bn J Schrempp called the merger a marriage made in heaven Daimler Chrysler is born (57:43)

Mid 2003

BMW cars outsell Mercedes for the first time in six years Sales of Mercedes SUVs below target Mercedes assembled in China for the first time Daimler Chrysler parts with Hyundai

February 2007

DaimlerChrysler invites investment bankers to assess strategic options for demerger On announcement of this move, Daimlers shares rise to six year high.

May 2007

DaimlerChrysler announces that it will sell off its Chrysler division to private equity fund Cerberus for approximately 5.5 bn Euro.

Stuttgart, Germany, August 03, 2007

DaimlerChrysler (stock-exchange abbreviation DCX) today completed the closing for the transfer of a majority interest in the Chrysler Group and for the related financial services business in NAFTA to a subsidiary of Cerberus Capital Management, L.P., a private-equity company based in New York. A subsidiary of Cerberus takes over 80.1% in the Chrysler Holding LLC, while DaimlerChrysler retains a 19.9% interest, as announced in May 2007.
(from official web site)

End of match made in motor heaven

And what happened next?

What happened next

In 2008 CAR Magazine announces alliance between Mercedes and . ? The reason: credit crunch, market saturation, and that great German rival VW/Audi/Porsche powerhouse, which builds more V10, V12, W12 and W16 engines than the competition combined

What happened yesterday?

Financial Times, 22 September 2009

Dell in $3.9bn cash deal for Perot Systems =
Announcement of strategic change Dell looking for large acquisitions in IT business services

Realtime Worlds

Scotlands biggest games developer Winner of the Hottest Prospect Award at Tech Media Invest 2008 Developing some of the worlds best selling video games, such as Crackdown And what happened next?

Realtime Worlds

APB was to be the Grand Theft Auto of the 21st century a freeform copsn robbers shootfest in a massively multiplayer universe Developing the game cost the company $105m In August 2010 the company went into receivership How did this go soooooooooooooo wrong?

Microsoft

February 2008 Microsoft makes strategic changes in technology and business practices to enable interoperability
Change in business practices and technology to increase the openness of its products and drive greater interoperability, opportunity and choice for developers, partners, customers and competitors

Microsoft 2011

Steve Ballmer gives a keynote at Research in Motion announcing that Bing will become default search provider on Blackberry devices:
Microsoft changing from domination to alliances in gain mobile supremacy ???

Nokia 2011

Outlines new strategy, new leadership and operational structure to accelerate the companys speed of execution in a dynamic competitive environment incl strategic partnership with Microsoft

The biggest merger in Scotland

Which merger will affect Scotland between 2011-2013?

Insights into strategic change (management)

Comprehensive Timing and time Proactive and reactive Hubris, promises, expectations Difficult to get out of Role of leadership Shareholder value, stakeholder conflict Ambiguous success rates Sustainability and responsibilities The issue of imitation Public and private sectors

Defining strategic change

Strategic change aims at renewal and transformation, designed to maintain competitiveness. It is fundamental change. Strategic changes aim at creating a new type of alignment between the firm and its environment (de Wit & Meyer, 2005, p. 73) Strategic change management is the proactive management of change in organisations to achieve clearly identified strategic objectives (Lynch, 2003, p. 764)

Strategic change illustrated

Strategic change designed to achieve renewal or new types of alignment include Diversification New partnerships and configurations Outsourcing and recombinations Changes in core technology Changes in business processes and organisation of work Changes in product portfolio Changes in mission, direction, culture

Reality check

Despite agreement on the need for strategic change, many change initiatives result in suboptimal performance. Over 50% of M&A fail to deliver on long-term shareholder value (and over 70% of joint ventures) 57% of surveyed firms unsuccessful at executing strategic change initiatives over the past four years (Allio, 2005). Over 60% of change initiatives are considered failing (Burnes, 2004) In a survey among 600 managing directors of German companies, 70% of change management programmes were reported as failing (Lilie, 2002)

Stating the obvious:

The strategic change imperative

Though the complexities of change and the strategies required to both survive and prosper can be overwhelming, change cannot be ignored by any organisation hoping to maintain a competitive edge (Graetz et al, 2007)

Studying strategic change a module introduction

What are the assumptions underlying approaches to change management What motivates strategic change What drives strategic change and what analyses can we undertake What are the implications of strategic change and therefore the management issues arising from it What is the theory base, how does it help, how do we critique it What recommendations can we make for effective action?

Module @ a glance
Teaching Workload Assessment Learning support & handouts Schedule Contacts = Module @ WebCT

Week 1 - Overview

Understanding the change imperative The importance of analysis: Recognising triggers for change Analysing industry dynamics

The challenges of managing strategic change

The world as it used to be

The Fordist Age characterised by

Relative stability of (domestic) markets and industries Relative stability of boundaries and hierarchies (intra/inter organisational) Focus on mass production and cost Relative homogeneity of customer base and customer expectations = Steady growth = evolution

The Post-Fordist (contemporary) business environment

Globalisation
Increasing levels of interdependency, complexity and risk Advantages of economies of scale, cost reduction, and standardisation versus Hyper-competition, cultural diversities, identities, resistances, self-expression Investor power = power reversals, shifting locus of control

The contemporary business environment

Knowledge-based economy Shift from transformation to transaction

economy Value creation based on information flows and efficient processing and harnessing of information and knowledge Value created by production superseded by value created by knowledge and information Superior knowledge is competitive advantage = focus on human capital, employees as assets, building, binding, tying, losing human assets = once more shift in locus of control = The basis of competitive advantage today : business analytics

Drivers

New technologies
Reduction of cost of communication Redefinition of products and services Opportunity to unbundle activities Requirement for networked organisations Increase interdependence between organisations Increased velocity DISSOLUTION OF INDUSTRY BOUNDARIES = E.G. telecom operators, internet services and cable TV providers

Examples of new technologies

Drivers

New customer behaviours End of the age of deference End of the age of mass consumption New technologies new expectations New means of trading new means of consumption New technologies increased expectations But also : supply exceeding demand

Drivers

What precisely do we mean by this?

Drivers

The power of the internet = the search for new business models
Content is free content is not free? Advertising, subscription, micro payments Good bye to the middle man The innovation imperative and open innovation The End of competition ???

The current economic climate

A catalyst or a cause? The example of the car industry The case of banking The observation that the credit crunch is the big issue here and not on the continent Lessons learned?

Summarising trends

Suppliers market
Task Oriented time Product/service Oriented time

Buyers Market
Process Oriented time
Value orientated time

1945

2000

Production dominates people

People dominate production

Drivers of the change imperative

Change pressures result from the interplay of drivers located in
The extra-institutional environment (technological advances, demographics, social movements, management logics, interdependencies) The institutional environment (regulatory systems, education systems, rule making, capital markets) The industry (competitive dynamics) The firm (management action, strategic intent, performance, history).
(based on Child, 2005)

Two types of change*

1.

Incremental change associated with those periods when the industry is in equilibrium and the focus for change is doing things better. Discontinuous change which occurs during periods of disequilibrium. It involves a break with the past rather than an extrapolation of past patterns of change.

2.

*From Hayes, Theory and Practice of Change Management (2002, 2007)

Change occurs

In all industrial categories, organisations go through periods of continuous and discontinuous change with some degree of regularity

When such discontinuous change occurs, the equilibrium (of organisation, of industry) is punctuated

A new pattern of change

The gap between periods of discontinuity may vary across industrial categories, but in many industries this gap is closing and discontinuities are occurring more frequently age of hyper-competition

From Hayes, Theory and Practice of Change Management (2002, 2007)

Recognising change triggers

Need for change arises where Businesses competencies and capabilities are no longer aligned with key success factors in industry Discontinuous changes in environment occur Congruence no longer exists between environment, value and resources Consequently strategic inflection point is reached

Recognising change triggers*

Based on P Strebels Model of the Evolutionary Cycle of Competitive Behaviour (1996) Model can be used to anticipate technological and economic changes in the environment Model can be used to assist in planning for strategic change Model argues that competitive behaviour in industries follows a certain pattern or cycle The cycle has two phases, interrupted by breakpoints the first phase is the innovation phase, the second the efficiency phase The phases are interrupted or signalled by breakpoints

Recognising triggers for change For example the computer industry

little scope for added value through innovation Breakpoint

Convergence

of offerings compete on cost ?

Efficiency phase Innovation phase

Variety creation: IBM rethinking mainframe to Sonys Vaio and beyond

Survival of the fittest

Start
Breakpoint: Apple & DEC develop mini computers Divergence of offerings

Recognising breakpoints
Indicators of divergence: Falling demand for standardised products Declining margins throughout the industry Indicators of convergence: the breaking down of traditional customer segment groups convergence between previously separate industries a relative absence of potential new entrants supplies and technology becoming standardised and commodity-like a shift in bargaining power towards distribution

Strategic change management means

Analysing and assessing change pressures Assessing the organisations change capacity Understanding the organisations change readiness Building such readiness Making strategic choices Providing leadership Responding to the consequences of strategic change Coping with the unexpected Understanding the resistance to change Evaluating the effectiveness of change and taking action accordingly

The module
will address these issues through

Discussion of relevant theory Discussion of relevant research themes Discussion of cases, some longer, some shorter, some interesting, some really boring

Tutorial Task

What are the key strategic issues HP? What strategic change moves were announced? How do you evaluate these? What other options (strategic change) are available?
To answer the questions use the material provided or ad other sources. We refer to the changes announced by Leo Apotheker.