HERIOT-WATT UNIVERSITY

STRATEGIC PLANNING – AUGUST 2021

GRADING GUIDE

The three questions have been designed to provide the candidate with the opportunity to
apply ideas from the core business disciplines within a strategic framework. There is no right
or wrong, and candidates are not penalised for arriving at ‘wrong’ conclusions; instead, they
are rewarded for identifying that a model can be applied and attempting to do so.

The main points relevant to each question are contained in the Solution. However, student
answers can vary greatly in how models are applied, and often points are made in an
original fashion. Credit is also awarded for integrating ideas from the other disciplines: for
example, the appropriate use of accounting techniques, investment appraisal, theories of
market structure, motivational theories, marketing techniques.

Each question is graded individually in the first instance and all three questions are given an
equal weighting. The marks for individual questions should be allocated in 5% ranges; it is
not meaningful to allocate finer divisions of marks for individual questions. The criteria are:

• 44% and below: a clear fail, where the candidate demonstrates little understanding of
the use of models or knowledge of strategic terminology.
• 45% – 49%: a clear fail, but the candidate demonstrates some knowledge of the
terminology and attempts to apply ideas; the question is of ‘compensatory’ standard.
• 50% – 54%: a clear pass; the candidate applies one or more models such as Five
Forces, portfolio analysis, strategic planning process model, financial analysis, value
chain, generic strategies, etc. There is no hard and fast rule for the minimum
requirement, but it is typically fairly clear when the student has understood the basic
strategy ideas.
• 55% – 59%: a clear pass that contains application of some models and draws limited
conclusions.
• 60% – 64%: clear understanding and some good applications. Contains a variety of
models applied correctly with relevant conclusions drawn.
• 65% – 69%: as above but demonstrates further insight and/or application.
• 70% – 74%: applies models correctly and consistently. The argument is clear and
consistent, with conclusions at each point and drawn together to address the question.
Clear understanding and good applications throughout. A variety of models used to
develop different perspectives.
• 75% and above: candidates in this range demonstrate a mastery of the field of strategic
management in a variety of settings, with thorough and systematic application, insightful
conclusions and/or recommendations and evidence of creative thinking. It is very rare to
award more than 80 for an individual question, but for exceptional answers it is
acceptable.

When grading strategy papers, write a brief reason for failing any question. If the paper fails
on the basis of simple addition of the three marks, review the paper as a whole and decide
whether the candidate has demonstrated an adequate knowledge of the subject and ability
to apply ideas. For these papers, write a brief overall review justifying your decision on either
pass or fail. For example, a candidate may demonstrate a good knowledge of the subject in
two questions and miss the point on the third; you may judge that the candidate has
demonstrated sufficient grasp of the subject and the ability to apply concepts in the two
questions answered well to justify a pass.

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Do not be afraid to award high marks for good discussions. This examination is a severe test
of the student’s ability to apply relevant concepts under a time constraint. Grading is not
simply a matter of adding up the number of points made or models applied: pay attention to
the quality of the argument.

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 HERIOT-WATT UNIVERSITY

STRATEGIC PLANNING – AUGUST 2021

Question 1

1. Finances

The company is debt-free, but this is a very risk-averse capital structure and is
resulting in low returns to shareholders in terms of return on equity. There is a large
gap between gross and net profit, which suggests possible cost management issues.
On the other hand, the cash position is healthy. One possible cause for alarm is that
43% of overheads are spent on the corporate centre.

The products have different levels of profitability. The Crane is making a loss. There
are high attrition rates across each of the product lines and working time is more than
100%, suggesting that a ‘no firing’ policy would have little impact.

BCG and PLC

The Anvil is in a mature market and has a high market share. It is therefore a cash
cow. It is selling above market price, with no product development, which could
suggest high levels of differentiation. High levels of inventory and marketing spend
are more appropriate for a growth market.

The Scale is in a mature market and has a high market share, and is therefore also a
cash cow. Again, working time, inventory levels and marketing spend suggest it is
being managed for a growth market.

The Crane has a small market share in a high growth market and is therefore a
question mark. The high levels of inventory and 17% overtime suggest that this
product has failed to make an impression in this competitive market.

Five Forces

While the details of such an analysis are subject to debate, it is clear that Acme faces
relatively low levels of competition for the Anvil and Scale, but the Crane is operating
in a highly competitive market.

Perceived price and differentiation

The two legacy products, Anvil and Scale, seem both to be in the success-likely area
of the matrix, while the Crane has launched into a highly competitive market
dominated by one big player. It is in the failure-likely zone.

Value chain

Inventory management is poor. The high inventories are indicative of poor resource
management, particularly when high-cost overtime working is used to produce for
inventories. Given the BCG and PLC positions of the products, this is a serious
concern.

There are a number of HRM issues. The labour problems, on which the CEO
focuses, could be the outcome of several factors, some of which may be beyond his
control. The Operations Director has hinted at labour supply problems and now a

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 general shortage of labour as the economy booms. The labour force is likely to be
highly mobile during this period of excess demand and wages are rising fast as skills
shortages appear. Given the internal mismanagement of resources already
identified, the high attrition rates may point to further poor management or be related
to wage rates, poor working conditions and poor incentives.

There are potential costs and benefits from a ‘no firing’ policy: on the plus side it is a
‘hygiene’ factor and may reduce the attrition rate and thus contribute to productivity
through learning curve effects; on the negative side it may shield poor workers, lead
to inflexibility and cause incentive problems.

Growth vector/competences

The CEO assumed the move to producing Cranes was related diversification and
that synergies would follow. But it appears unrelated in terms of both resources and
routines, as it is not linked to the automotive assembly. It is also in a sector where
the competitive environment is dominated by a multinational, making it a very risky
proposition.

Overall assessment

The ‘no firing’ policy targets only one small area of Acme’s value chain and it is
unclear whether or not it will solve the HR problems. The fundamental strategic issue
is one of unrelated diversification.

2) The first step is to structure the available information into a SWOT analysis, which
would reveal that the company is vulnerable to changes in economic and competitive
conditions. The precise classification of the data is a matter for individual discretion.

In the short term it could be concluded that the company should abandon production
of the Crane, unless costs can be reduced; unit cost is currently almost equal to
price.

In the long term the company needs to invest in the development of new products,
given finite product life cycles. To do this it needs to divest the Crane and use the
money to extend the life of (or develop replacements for) its cash cows.

(Total 100 marks)

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Question 2

1) i) BCG

He requires market growth rates and market shares. Profitability is not a good
guide to a product’s potential – it depends on its position in the matrix. Stars
and question marks require investment, while unprofitable dogs need to be
divested.

ii) Related businesses

Linkages between components of the value chain need to be identified along

with the overall strategic architecture. There may be synergies that justify
retention of businesses within the supply chain but these need to be
identified; often there is a mistaken idea of what the company is ‘about’.
Vertical integration has many drawbacks and the company needs to consider
the make-or-buy issue. The match between the routines and resources
required in each of the businesses helps to determine the degree of
diversification. The identification of an underlying core competence which
binds the businesses together is essential.

2) Strategists

Mr Kaeser is an analyser and as a long-term Siemens employee has been part of the
bureaucracy. His focus is on internal issues and ‘Vision 2020’ is aspirational and is
not consistent with his analytic approach.

Objectives

Mr Kaeser has added to the business definition but the original definition of
‘electrification’ is now obscured. It is not clear what the connections between the
three items in the ‘value’ chain are. In fact, the justification for ‘electrification’ is not
clear given that parts of that supply chain are not profitable.

Overall who decides to do what

Mr Kaeser is attempting to impose a unifying theme on an enormous conglomerate

which has no rationale other than the vague idea of ‘electrification’. He has no
experience of running conglomerates and is part of the culture that he is trying to
change.

Macroenvironment

Environmental scanning was clearly deficient, Siemens having ‘slept through’ the
development of fracking. This is a case where the function is not integrated into the
strategic decision-making process.

• Political: Siemens has not handled the political environment well, with the bribery
and price-fixing scandals and the ill-advised statements on collaboration with
Gazprom. Operating in so many countries makes it difficult to control
relationships.
• Economic: Siemens operates in so many countries and industries that the impact
of economic events on the company as a whole is difficult to estimate.

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• Social: the trend towards increasing sophistication in healthcare is a major
opportunity but this is not part of Mr Kaeser’s core vision.
• Technological: in principle Siemens is an innovative company but it is let down by
delivery.

The PEST profile suggests that Siemens needs to focus on its political relationships
and ensure that employees are operating within the framework of law. Taken
together, the lack of environmental scanning and weaknesses in response to PEST
threats suggest that Siemens is focused internally.

Industrial environment

Siemens operates in many products and economies. Products will be in various

stages of their life cycles and with different market shares. The need for appropriate
market analysis is outlined in Question 2.1.

Internal environment

The situation is complicated by the internal inefficiencies caused by bureaucracy and

cultural issues.

The value chain

The role of value chain analysis is dealt with in Question 2.1.

Culture

Siemens is based on a task culture in which employees are focused on their own
area of responsibility. Mr Kaeser’s notion of ‘ownership’ and punishment is unlikely to
make much impact.

Competitive position

Mr Kaeser has been unable to identify a basis for Siemen’s competitive advantage;
his definition of core competence is questionable, his priorities are reactive and his
2020 Vision lacks substance.

Generic strategy alternatives

At the corporate level Mr Kaeser is pursuing retrenchment towards his new definition
of the core.

At the business level, with its strong R&D and innovative output, Siemens is primarily
differentiated.

Strategy variations

Mr Kaeser has not always been successful in his acquisitions – for example, Alstom,
which would have strengthened the core business. The acquisition of the wind power
business from Rolls-Royce was successful but it is dependent on the British
government’s future policy.

Choice

It is not clear how Mr Kaeser arrived at his choice because of the lack of logic in
Siemens’ structure.

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Overall choice

Mr Kaeser is embarking on a huge change programme while acknowledging that

Siemens is not in crisis but just needs to perform more effectively. But it is not clear
how the change programme is going to increase profitability.

Resources and structure

The divisional structure has been simplified but Mr Kaeser has only eliminated one
layer – that still leaves five layers of bureaucracy between the management board
and the major project management executives.

Resource allocation

It is not clear how resources are allocated among the many business units.

Monitor and control

Siemens has been characterised by loose strategic control; Mr Kaeser is trying to

tighten up strategic control by identifying the core activities and dealing with the
organisational priorities.

Feedback

The layers of bureaucracy have stifled feedback in the past. Mr Kaeser is trying to
improve this by assigning ‘ownership’ and reducing the bureaucracy.

Overall strategic process

Mr Kaeser has made attempts to improve parts of the process but most of his actions
are either illogical or marginal.

(Total 100 marks)

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Question 3

In terms of logic and structure, the strategist was referring to the process model. The
process model is a structure within which the various steps necessary to operate
strategically are set out. It is not prescriptive and it does not have the features of a model in,
say, economics, that has a clear cause and effect. The fact that it incorporates the feedback
learning loop means that it captures the dynamics of the ever-changing competitive
environment.

The sort of things you have to know can be identified from the augmented process model.
For example, business definition under objectives, principal agent under strategists,
business cycles under macroenvironment, market structures under industry environment,
value chain under internal factors, five forces under competitive position, business generics,
mergers and acquisitions, managerial power relationships under choice, divisionalisation
under structure, efficiency criteria under resource allocation, financial and strategic control
under control and learning organisations under feedback.

(Total 100 marks)

© Heriot-Watt University, August 2021