CHAPTER TWO
Stage 9: Evaluate change outcomes
2.11 Identifying Failure Points
The ACCA Newsletter (December, 1999), views strategic failure as committing one or more of the
"seven deadly sins of strategy implementation".
• Strategy not worth implementing: if the strategy is going to receive active support of management and staff, it needs to be specific, realistic and give the organization something
to strive for. The strategy should just be more of the same, incremental or comfortable. It needs to be stretching or innovative.
• People are not clear on how the strategy will be implemented: When the strategy has been developed and evaluated, it then requires a plan to prepare the organization for its implementation. Issues need to be addressed include priorities for management, time scale, lessons learnt from previous strategy implementations, impact on structure and staff at all levels, participation and risks.
• Customers and staff do not fully understand the strategy: Front-line supervisory staff must understand what the strategy is about, why it is important and how it will affect them. The strategy implementation plan should include a communication plan, which sets out who needs to be told about the strategy. The plan should not only include senior management but also middle management, supervisor, staff, customers, suppliers and other key stakeholders.
• Individual responsibilities for implementing the change are not clear: people should be given clear and specific responsibilities for making strategy work. The more people you directly involve in the implementation process the better. This encourages a sense of ownership, commitment and responsibility for making the strategy happen. If someone is given an implementation task, it should be made sure that the task is done, as part of assigning staff responsibility is giving clear, understandable instructions and tasks and reviewing progress at regular intervals.
• Chief Executives and senior managers step out of the picture once implementation begins:
It is very important that strong leadership is provided during the implementation phase. If staff feel that senior management are not fully committed to the strategy, their commitment and enthusiasm for it will wane. Staff must believe that implementing the strategy is one of the organization's top priorities. They need to explain the vision and communicate the importance of the strategy for the future of the organization.
• The "brick walls" are not recognized: organizations operate in an ever changing and dynamic environment. It is important that those brick walls, which inevitably will be encountered along the way, are acknowledged and addressed. Staff should be encouraged to develop creative and innovative solutions to surmount these obstacles.
• Forgetting to 'mind the shop": There is a risk that the process of developing and implementing strategy becomes the consuming concern of senior management. Both management and staff must believe that implementing the strategy is as important as doing
the day job. One is not more important than the other and the strategy, if it is relevant and meaningful, should become an integral part of the day job. Periodic checks are necessary.
Assumptions need to be checked that they are still valid, developments both internal and external may require revision or addition to the strategy and to be sure that the changes are really required and the strategy is not being adjusted in a frivolous manner (ACCA Newsletter December, 1999).
A powerful tool for understanding the Activities and processes involved in delivering a particular type of service is blueprinting, which is defined by (Lovelock, 2001) as follows:
A blueprint identifies all key Activities involved in service delivery and production and specifying the linkages between these Activities. A central aspect of service blueprinting is to distinguish between what the customer experiences front stage and the Activities of employees and support processes backstage, where the customer cannot see them. Service blueprints clarify the interactions between customer and employees and how these are supported by additional Activities and systems backstage. Blueprinting facilitates the integration of marketing, operations and Human and Resource Management within a firm through interrelating between employees' roles, operational processes, and Information technology and customer interactions. A consistent approach should be maintained by the organization.
A blueprint give managers the opportunity to identify potential fail points in the process that pose a significant risk of things going wrong and diminishing service quality. It may suggest product improvement opportunities resulting from reconditioning delivery systems, adding or deleting specific elements or repositioning the service to appeal to other segments. A blueprint also highlights the points where failures are most likely to occur, helping planners to identify how failures at one point may have a ripple effect later on the process (Lovelock, 2001).
2.11.1 Bankruptcy Prediction Models
Attempts to develop bankruptcy prediction models started being recognized seriously in the late 1960's and continued to be used even today. Failure prediction models include primarily, Altman's failure prediction models, statistical, mathematical and artificial neural network models.
It appears that there is no consensus on what constitutes business failure.
However, most businesses are considered to have failed once they have entered formal bankruptcy proceedings (Internet, 3).
As opposed to the ratio analysis models failure prediction models are more objective than subjective. A multivariate discriminate analysis (MDA) is used based on regression analysis. It establishes coefficients for the ratios to minimize misclassifications. The model predicts whether there is financial distress or not. In this case the Altman model - developed by Edward Altman will be used. Altman applied MDA to a sample of companies and developed a discriminate function that classified companies either as failed or successful (Correia, Flynn, Uliana and Wormald, 2000).
2.11.2 Solvency Prediction Ratios
A company's solvency evaluation depends on how financially solvent at its inception; its relative flexibility and efficiency in creating cash from its continuing operations; its access to capital markets and its financial capacity and staying power when faced with unplanned cash short-falls.
When companies undertake major new projects or undergo reorganization they should perform financial feasibility studies to determine whether the company has the financial capacity to undertake the project and whether the company will be able to repay all future debt payments once the project is built. Factors affecting solvency include, capital structure and capital adequacy, operating cash flows and cost structure, earnings capacity, liquidity, asset conversions, asset utilization efficiency and strategic position (Internet, 3).