Introduction

There is significant evidence to suggest that organisations go through long periods of relative continuity, during which established strategy either goes unchanged or changes incrementally. However, there is a concern that such relative stability can cause strategic drift, where strategies fail to address the changed strategic position the organisation finds itself in and so organisational performance gradually deteriorates. This is typically followed by a period of flux in which strategies change, but perhaps in no clear direction. This can be followed by a transformational change, in which there is a fundamental change in direction to address the critical strategic position of the organisation. Alternatively, the period of flux may accelerate the poor performance of the organisation and leads to its demise.

Performance 2007 to 2017

2007 to 2013 saw a decline in financial performance at ABC as revenues fell more quickly than costs. Losses (before tax and interest) were reported in both 2011 and 2013. The gross profit margin fell from 30% in 2007 to 18·75% in 2013. A positive net profit margin in 2007, of 10%, became a negative one by 2013. The company attempted to address this deteriorating financial performance by conventional strategies which were essentially more of the same: increasing display advertising and price discounting. However, despite these initiatives, financial performance continued to worsen. Moreover, revenues were declining at the time when interest in ancestry was increasing in Oraria, encouraged by television programmes exploring the family history of celebrities. This important socio-cultural trend in the environment should have been an opportunity for ABC to increase sales of this type of book.

The strategy by design lens takes the view that strategy development is a logical process where analysis and evaluation techniques can be applied to establish a clear strategic direction. It is perceived as a rational approach to strategy, where top management decides the strategy of the organisation and then issues top-down directives to implement that strategy throughout the organisation. In this approach, strategic analysis takes place through matching an understanding of the external environment of the organisation (the opportunities and threats it presents) with the internal strengths and weaknesses of the organisation. This leads to the deliberate positioning of the organisation in its market place. The actions required to establish this position often take place over a long period of time (three to five years) and these actions are cascaded down through the organisation to those who have to make things happen. Strategy by design is often associated with clear, specific objectives and a control system of budgets, targets and appraisals which can be used to assess progress towards the overall objectives. Critical success factors (CSFs), key performance indicators (KPIs) and specific performance measures are often associated with strategy by design. At ABC, the new owners, BV Ventures, represent the design lens. Its prescription reflects this approach exactly, with the SWOT analysis summarising the external environment and internal capabilities of the organisation. The strategic direction is determined by explicitly positioning the company to take into account this analysis. So, for example: using a strength to exploit an identified opportunity or to recognise a weakness which cannot be addressed and so remove itself completely from a market where there is a strong, persistent threat. As already noted, clear objectives and the top-down allocation of actions which should fulfil these objectives are typical of the rational, design approach to strategy.

The strategy by experience lens takes the view that future strategies are based on the adaptation of past strategies influenced by the experience of managers and others in the organisation. This approach is strongly driven by the taken for granted assumptions and the ‘way we do things around here’ embedded in the culture of the organisation. In this approach, there is a tendency for the strategy to build on what has gone on before. Thus strategies develop in an incremental or adaptive way and lead to gradual, rather than fundamental change. This lens is exemplified at ABC by Rupert Hart and his management team. In the period from 2007 to 2013, when there were clear changes in the environment, ABC responded to these by using marketing techniques which they had used before and were comfortable with (increased display advertising and discount pricing). Both of these were insufficient to address the fundamental change in buying patterns which was taking place in the external environment. The problem at ABC was probably exacerbated by the fact that Rupert had largely recruited in his own image, employing ex-military men or people who had history degrees from well-respected universities. Such people are likely to think alike, particularly when the chief executive is also the sole shareholder. The commonality of background might create a strong organisational culture, but can be a problem when there is a need to think outside the box to address problems which threaten the continued existence of the organisation. There was a lack of diversity in the management team needed to make the fundamental change which was required. This approach to strategy is likely to create the strategic drift discussed in the first part of this question, as management fails to see the need for significant strategic change or possess the tools to make such change.

The strategy by ideas lens emphasises the need for diversity and variety in an organisation, with variety being used to generate genuinely new ideas. In this approach, strategy emerges from within and around the organisation as people cope with uncertainty and the changing environment of their day-to-day work. To some extent, Rupert Hart attempted to inject this into ABC by appointing Jon Lang. Jon did not come from the same background as his colleagues and, in dressing in casual clothes, indicated that he did not wish to fit in with the prevailing ‘suit’ culture. It is not possible to plan for such creativity or to reliably pinpoint someone as the ‘ideas generator’ and there is a danger that a ‘new idea’ generated within the company is actually inappropriate or less appropriate than other, undiscovered, ideas. This may be the case at ABC where Jon Lang comes up with an idea, the development of the e-commerce site, which does appear to be relatively successful. Although the financial performance of ABC has not significantly improved by 2017, the percentage split of the sales source analysis clearly shows the attraction of the new approach. In 2017, 25% of orders were made through ABC’s website, compared to just 10% in the previous year, its first year of operation. Although some colleagues doubted this approach, expressing concern about harming the relationship with book-sellers, there was no other creative alternative. It was, in effect, the only idea on the table. Strategy as ideas is likely to be more successful where the organisational culture encourages a number of competing ideas and the best survive and are adapted and adopted by the organisation. It works better in organisational cultures which encourage variety and informal networking and this seems unlikely in both the current and future structure at ABC. It is interesting that Rupert Hart appears to revert to type when appointing a successor to Jon Lang. The new employee is a male history graduate from the same university which Rupert attended.

Critical success factors (CSFs) are key elements of organisational performance which the management of the company believes to be fundamental to, or indicative of, the success of the company. Key performance indicators (KPIs) are defined to allow performance in a CSF to be quantified. There are often several KPIs for each CSF. The KPI itself does not include the actual value of the measure, this is specified in a performance objective. These performance objectives are likely to change over time (to reflect changing trading conditions and aspirations) but the basis of the measurement will stay the same, unless it is agreed that the KPI is a poor measure of the CSF, or indeed if the CSF itself is deemed to be no longer relevant.

Some CSFs can be related directly to high-level objectives of the firm (for example: ‘to become market leader’ would probably translate into a CSF concerned with revenues) whilst others facilitate a high-level objective (for example: customer service excellence should help the company become the market leader). Traditionally many CSFs were financial, because this was the primary measure of organisational performance. However, since the publication of the Balanced Scorecard (Kaplan and Norton), there has been increased recognition of other CSF elements. Kaplan and Norton’s framework encourages the definition of CSFs from the perspective of the customer, the internal business processes and learning and growth.

At ABC, it is likely that BV Ventures will have CSFs for:

– Profitability (need to publish books profitably, it is also part of the mission statement)

– Revenues (need to increase revenue)

– Return to shareholders (adequate return to shareholders. As venture capitalists, BV Ventures will be particularly focused on return to shareholders)

– Customer delivery (speedy delivery)

– Customer service (dealing with post-sales issues)

– Customer satisfaction (leading to repeat orders and referrals)

– Product quality (the content and presentation of the book)

CSFs might also be developed for employee satisfaction (the ‘who people want to work for’ in the mission statement). Key performance indicators might be:

Profitability: standard measures such as net profit margin, gross profit margin, return on capital employed (ROCE), etc.

Revenues: total sales by value. The link between revenues and profitability needs to be monitored. Revenue can be inflated by price discounting (selling more books for less money) but this critically impairs profitability.

Return to shareholders: standard measures such as dividend yield ratio, earnings per share, price/earnings ratio, etc.

Customer delivery: percentage of deliveries made within a specified number of days between customer order and customer receipt.

Customer service: percentage of service requests dealt with satisfactorily within a specified number of hours.

Customer satisfaction: BV Ventures has already suggested potential measures for this, number (or percentage) of repeat orders and number of customer referrals. However, these would need further consideration. A customer may be very satisfied but not wish to order any more books, or not have any friends interested in ancestry and military history. A better KPI might be the ‘percentage of people who indicated that they were ‘very satisfied’ in an independent survey of customers’.

Product quality: again, BV Ventures has already suggested that the ‘almost elimination’ of returned books would be an indicator of product quality. Thus the KPI could be ‘the percentage of book returns’. Achieving such a KPI should reduce demand for after-sales customer service.

Employee motivation might be measured by staff turnover, average length of service or percentage of employees stating that they are ‘very happy’ in an independent survey.

A mission statement is a statement of the overriding direction and purpose of the organisation. It represents its ‘reason for being’. Some organisations use the term ‘vision statement’ and some have both mission and vision statements, distinguished from one another by their level of detail. Although some writers have decried such statements as being too bland or general, the mission statement does provide the opportunity for the management of the organisation to communicate to stakeholders what they believe the organisation is about and what its aspirations are. It is often defined at a level which all stakeholders could subscribe to. In doing so, it emphasises the common ground between stakeholders, not their differences. If there is substantial disagreement about the mission or vision of the organisation, then this is likely to lead to subsequent problems in agreeing the strategic direction of the organisation. The strategic direction needs to be aligned, in some way, to the organisational mission.

At ABC, the absence of a mission statement in the past will have meant that its management was unable to evaluate their strategy against any high level vision. This is consistent with a strategy by experience crafted by individuals who have a common background. There is tacit agreement of what the company is about, it does not need to be articulated.

It is important therefore for the new owners to be clear about their vision for ABC and to communicate that vision to other stakeholders. Without this communication there will be concerns about the motives of the new stakeholders and with a lack of mission comes rumour and uncertainty, particularly when the new owners are venture capitalists, organisations which are often associated with asset stripping. Generally, people react negatively to change and so any positive communication from the new owners is likely to have an impact. The mission ‘to develop a profitable, successful company who people want to work for and customers want to buy from’ is both short, high-level, and likely to be agreed by all significant stakeholders (shareholders, employees and customers). Consequently, it is probably quite a good mission statement.

It is significant that BV Ventures has tried to reassure both employees and customers in their press statement. The acknowledgement of the work of Rupert Hart and his team should also be particularly welcomed by employees.

Integrated reporting provides an opportunity for the company to periodically restate its mission and to indicate how that vision is guiding strategic direction. It can also restate its CSFs and KPIs and demonstrate what progress has been made in achieving the specific performance objectives which underpin the KPIs. In the past, like CSFs, reporting on organisational performance has focused on financial reporting. Integrated reporting widens the scope (just like the balanced scorecard helped widen the perception of CSFs) of reporting and provides a more holistic view of performance. It is also an opportunity for management to reinforce their vision, aspirations and targets.