ACCA P3 Business Analysis - 2010 - Study text

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Chapter 10: Strategic action

 To what extent does the existing corporate culture need to be preserved because

it supports essential competencies of the entity that need to be maintained?

Six aspects of the cultural web can be studied, so that the desired change can be seen

in the context of the current organisational culture and what needs to change.

Symbols

Are the outward symbols of culture – such as logos and uniforms –

helpful for making the change? Or are they a barrier to change?

Does the language used by various groups of employees assist with

making the change? Or does the language used by some groups

exclude other groups from involvement?

Power structures

The individuals who believe in the vision for change need to be the

most ‘powerful’ people within the corporate culture. Is this actually

the case at the moment? Who holds the power over change? Is this

the right person or group? Does the current power structure help or

hinder change?

Organisation structure

The organisation structure is an expression of the behaviour that is

expected from each person working within it. Is the current

organisation structure appropriate for the change that is needed?

Control systems

All systems within the entity need to contribute to making the change

and achieving the strategic vision. This includes communication,

information and performance management systems. Are these

systems appropriate? Are they efficient and do they promote the

desired change?

Routines and rituals

Do the existing routines and rituals that are widely used help or

hinder the entity in achieving the vision for change?

Stories

Are the stories that are used to communicate the culture of the entity

appropriate for explaining the current strategy and vision? Do the

stories represent the ‘reality’ that management wants to achieve?

Example

Outward symbols can act as a barrier to change. For example, a manufacturing

company that wants to introduce changes to the organisation of production

processes, in which more responsibility and ‘power’ is given to production workers.

This would require a more collaborative approach between managers and

employees. The current ‘culture’ of managers wearing formal suits and other

employees wearing factory uniforms might be a barrier to change.

Example

A company might have an established ritual whereby work groups meet regularly

every Monday morning to discuss progress made during the previous week and

plans for the current week. These work group meetings start at 8.30 and go on for

about one hour.

It might be that in planning to introduce major changes to operations within the

company, this ritual of Monday morning meetings would hinder the change, by

using up the time of individuals who now need to be somewhere else and doing

other things on Monday mornings. A change in culture is therefore needed, and

employees need to be persuaded of the need to change the Monday morning ritual.

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Understanding strategy development

 A mix of intended strategy and emergent strategy

 Intended strategy

 Emergent strategy

 The process of strategy development: a summary

7 Understanding strategy development

7.1 A mix of intended strategy and emergent strategy

Strategy development has been described in an earlier chapter as either intended

strategy (or deliberate strategy), emergent strategy or incremental strategy.

Mintzberg has argued that strategy development should be a mixture of intended

strategy and emergent strategy. He commented (1987) that strategy is shaped as

much by the capacity of individuals throughout the entity to respond to or create

opportunities, as it is by the strategic intentions of the senior managers at the top.

Management need to understand that strategic developments can occur in either of

these ways. However new strategic developments, both intended and emergent

strategy, must all be consistent and must all fit in with the same strategic objectives.

7.2 Intended strategy

Intended strategy is a strategy that is planned in advance through a formal planning

process. The choice of strategy is a conscious decision by senior management.

The board of directors of a company might approve a formal business plan. For

example, the directors of a company might approve a rolling five-year business plan

each year.

The formal plan should not be taken as a commitment to specific planning targets,

particularly if the entity operates in a continually changing business environment.

As changes occur, for example as new threats and opportunities emerge, an entity

should adapt its strategies and should not be committed to formal targets if these no

longer seem appropriate.

It is therefore necessary for managers to understand that:

 intended strategy is a formally-approved choice about the strategic direction that

the entity should be taking, and

 this choice was considered valid and appropriate at the time that it was

approved. However, strategy should be flexible.

7.3 Emergent strategy

Emergent strategy is new strategy that develops or ‘emerges’ without formal

approval being given in advance. It is the result of reaction to changes in the

environment and might be a response to changes as they occur.

Chapter 10: Strategic action

For example, many companies in the past few years have developed an e-business

for selling their products on the internet. This development for most companies was

in response to an unexpected growth in customer orders or enquiries in their

website. An emergent strategy, selling goods by e-commerce, therefore came into

existence without formal planning or formal approval. It was a natural response to a

major environmental change – customer use of the internet.

Emergent strategy has been defined as an ‘organisation-wide process of incremental

adjustment to environmental states that cannot be discerned or anticipated through

the prior analysis of data’ (Boisot 1995). This definition stresses the point that

intended strategy on its own can never be an adequate approach to strategy

development, because some environmental changes cannot be anticipated or

foreseen in advance.

 Emergent strategy may be developed at different levels within an entity, in

response to events as and when they occur.

 When environmental change or ‘turbulence’ is high, the responsibility for

emergent strategy might have to be decentralised entirely and intended strategy

becomes irrelevant due to the inability of managers at head office to understand

the changes that are happening. The ability of individuals within the entity to

innovate and be entrepreneurial can be extremely important.

Strategic intent

An intended strategy is also a statement of strategic intent. It indicates the strategic

direction that the entity is taking. Although detailed strategies might change,

strategic intent should be consistent. All new strategies and strategy changes should

be consistent with where the entity is trying to get to, and the objectives it wishes to

achieve.

When new, emergent strategies are adopted, these should also be consistent with

the entity’s strategic intent. The entity should not continually change its mind about

what it is trying to achieve.

7.4 The process of strategy development: a summary

Intended strategy and emergent strategy are developed in different ways. The table

below indicates the main differences.

Intended strategy

Emergent strategy

The outcome from a strategic planning process.

Emergent strategy becomes evident from

changes in the allocation of resources to

activities.

The implementation of change might be given to

specially-formed project groups.

Change is a cultural process.

Strategy consultants might be hired to advise on

strategy.

Organisational ‘power politics’ might affect the

strategic choices that are made.

Entities should accept the need for strategic development and change. Reference has

already been made to the dangers of ‘strategic drift’ and reluctance to make

necessary developments.

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Paper P3

Business analysis

CHAPTER

Modelling and redesigning

business processes

Contents

1 Business processes

2 Modelling an organisation and its processes

3 Analysing activities

4 Software solutions

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Business processes

 What is a business process?

 Process redesign as an aspect of strategy in action

 Technological change and process change

 The scope and focus of process change: Harmon’s process-strategy matrix

 The business process redesign patterns

 Methodology of business process redesign

 Business process re-engineering

1 Business processes

1.1 What is a business process?

A business process is a set of linked tasks or activities performed by individuals,

groups, departments or other organisational units within a business entity. A

business process:

 consumes inputs/resources

 adds value, and

 produces an output that has value to either an ‘internal customer’ within the

entity or to an external customer.

High-level business processes (and many lower-level processes) involve activities

by more than one department or more than one business function.

Business processes make up the value chain of an entity. The operations of most

business entities can be defined as a small number of processes, typically

somewhere between 6 and 12. Typical high-level processes might include:

 product development

 distribution

 manufacturing

 order processing

 customer service

 procurement.

High-level processes can be divided into a number of sub-processes, perhaps about

30–40 in number. It may also be useful to sub-divide the sub-processes into sub-sub-

processes. Processes at a ‘lower level’ contribute to the value chain by producing

output which becomes the input to another process.

For example, in a manufacturing company, there are processes of procurement and

managing inventory, and these add value to the manufacturing process (which uses

the output from the procurement and warehouse management processes).

Chapter 11: Modelling and redesigning business processes

1.2 Process redesign as an aspect of strategy in action

Processes might be changed or introduced as a result of implementing a strategy.

 New processes might be needed for new work.

 Existing processes might be improved. The purpose of improving processes is to

make them more efficient or make them add more value. It is useful to think of

process redesign adding to value in the value chain.

Process change exists at various levels:

 Automation – This means making existing operations more efficient by

automating work or computerising work previously done by hand. For example,

using a computer system to calculate wages and producing payslips. Computer

systems usually play a large part in automation. Automation might also be

improved by replacing an ‘old’ computer system with a ‘new’ one.

 Rationalisation – This involves streamlining standard operating procedures, so

that procedures become more efficient. For example, using electronic data

interchange to place orders with suppliers.

 Business process redesign or design – This is the major redesign of business

processes. It might combine radical changes in processes to cut waste, and

eliminating repetitive paper-intensive tasks in order to improve costs, quality

and service. The aim is to make major changes to a process in order to achieve

improvement in critical measures of performance such as cost, quality, service

and speed. An example of major change is allowing suppliers access to your

inventory records so that the suppliers become responsible for your inventory

management and decide when items should be repurchased and resupplied.

(Note that the term ‘business process re-engineering’ has fallen out of favour,

being replaced by ‘business process redesign’.).

1.3 Technological change and process change

Technological change, particularly new IT systems and methods of communication

and processing, often contribute to business process redesign. Here are some

examples:

Old methods and

assumptions

Disruptive technology (IT

developments that led to

process redesign)

New methods and options

Sales representatives spend

most of their time away from the

office, visiting customers.

However, they need offices

where they can receive, store

and deliver information

E-mails and attachments can be

sent by mobile phone to and

from laptop computers.

Sales representatives do not

need an office of their own.

They can receive and send

information anywhere.

Information can only be in one

place at a time and can only be

used by one person at a time

Shared databases, group ware

and networks

People can share data and

work collaboratively.

Businesses need high levels of

inventory to produce a reliable

service to customers that avoids

‘stock-outs’

EPOS, extranets, electronic

data interchange.

Just-in-time purchasing and

inventory management. High

inventory levels are no longer

needed.

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Old methods and

assumptions

Disruptive technology (IT

developments that led to

process redesign)

New methods and options

Only a limited range of standard

products can be made available

economically (at a cost that is

low enough to provide a profit)

Ordering and product

specification over the internet.

Automated manufacturing

techniques

Customers can ‘design’ their

own products, and these can

be manufactured

economically.

Only managers have the

information, skills and

judgement to make decisions

Decisions support systems,

expert systems, shared

information and networks

Decision-making is a part of

the job of many employees,

not just managers.

1.4 The scope and focus of process change: Harmon’s process-strategy

matrix

In order to make changes to business processes, decisions have to be made about:

 which processes to change (the focus of change), and

 how radical or extensive the process redesign should be (the scope of the

change).

The Harmon process-strategy matrix provides a useful framework to help

managers decide what type of process change or redesign might be appropriate in

the circumstances.

Harmon suggested that two factors should be considered:

 the complexity of the process (a complex process cannot be subject to a high

degree of automation, whereas a simple process can be largely automated)

 the strategic importance of the process to the company: a process has strategic

importance when it provides competitive advantage.

Processes can be placed in a 2 × 2 matrix according to the complexity of the process

and their strategic importance to the entity.

 ‘Process complexity and dynamics’ is measured on the vertical axis. This ranges

from low complexity/dynamics to high complexity/dynamics. Dynamics refers

to how often the process changes. (A dynamic process can be compared with a

stable process, which does not change.)

 ‘Strategic importance of the process to the entity’ is measured on the horizontal

axis. This ranges from low to high strategic importance.

A highly complex process which changes frequently will be difficult to perform

competently and could be subject to high error rates. The process is likely to require

employees with specialist or expert knowledge to do the work efficiently. A

complex process cannot be extensively automated.

The strategic importance of the process can be assessed by asking how much the

process adds value to the products or services sold. Is the process a necessary

administration-type task (low strategic importance) or is it a process in which the

entity has a core competence and so can provide competitive advantage (high

strategic importance)?

Chapter 11: Modelling and redesigning business processes

A Harmon process-strategy matrix is shown below. The four quartiles of the matrix

indicate the type of process and the scope of process change that might be required

if it is redesigned.

Strategic importance

Low

High

Process

complexity and

dynamism

High

Complex and dynamic

processes, but of low strategic

importance

Might be better to outsource

Complex and dynamic

processes that provide

competitive advantage

Business process redesign and

improvement

Low

Simple, stable, routine,

ordinary processes

Should be capable of a high

degree of automation

Processes that are simple and

stable, but provide competitive

advantage

Should be capable of high

degrees of automation to

improve efficiency/add value

Analysing the matrix

The matrix can be used to assess the scope and focus for process redesign.

 Processes in the bottom left quadrant are simple and stable. These are just the

conditions needed for automation of the process. The process is a ‘necessary

evil’: it has to be performed but it does not add value or provide competitive

advantage. The company should aim to make it as efficient as possible. An

example of a routine administrative process in this quadrant is the payment of

wages and salaries.

 Processes in the bottom right quadrant are also simple and stable. These

qualities make them suitable for automation. However, the process is

strategically important. An example of a process in this quadrant might be the

assembly work in a manufacturing process. Quality initiatives might be

important here also to ensure that the strategically important long-term process

is carried out to a very high standard.

 Processes in the top left quadrant are complex and change rapidly. However,

they are not strategically important and so they are not part of the company’s

core competences. An example might be the process of calculating the

company’s tax liability, or the process of writing some bespoke software. It

would make sense to outsource these activities to experts (assuming, of course,

that the company is not a firm of software engineers or a firm of tax consultants,

in which case these processes would be part of their core competences).

 Processes in the top right quadrant are complex and dynamic. They are also

important and provide the entity with a core competence. They cannot be

automated because they are too complex and dynamic. They should not be

outsourced because they are part of the firm’s core competences and are crucial

for adding value and making profit. These processes should be carefully

investigated and analysed. Where necessary, they should be redesigned to create

even more value.

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1.5 Business process redesign patterns

Business process redesign can be classified into a number of patterns. The basic

process redesign patterns are:

 Re-engineering. This is a radical redesign of the process.

 Simplification. This is redesign that simplifies the processes, for example by

removing unnecessary activities.

 Value-added analysis. This is process redesign that focuses on adding value in

the process and removing activities that do not add value.

 Gaps and disconnects analysis. This analyses a process with a view to

identifying parts of the process where there are gaps in the activities or where

there are inefficiencies or breakdowns in the transfer of output from one

department or function to another.

Pattern Driver Description

Re-engineering

Major reorganisation is

needed. New technology is

to be introduced

Design process from scratch. This will take

much time and effort and is a high risk/high

return pattern.

Simplification

Remove unnecessary

activities and duplication

Ask if each step in a process is needed and

what it achieves. This pattern can achieve

relatively modest improvements, but is

relatively low risk.

Value-added

analysis

Eliminate activities that do

not add value

Ask how each activity adds value to the

product or service. What does it do for the

customer? Does it transform the product or

service? This pattern usually achieves modest

improvements.

Gaps and

disconnects

Information or materials are

not passed correctly

between departments

Look at each interface between processes and

analyse what needs to pass and what needs to

happen. This pattern usually achieves modest

improvements.

Process diagrams (see later) should help in

identifying potential gaps and disconnects.

Example

A supermarket chain has the following processes and sub-processes. Place these

processes on a Harmon process-strategy matrix.

(a) Calculation and payment of wages and salaries for staff.

(b) Running of the company’s own-name credit card operations.

(d) Sourcing and ordering and receiving goods.

ACCA P3 Business Analysis - 2010 - Study text - Emile Woolf Publishing

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