APT TECHNICAL CPD - MAF (Strategy) 1 Strategy and Risk management - - PowerPoint PPT Presentation

APT TECHNICAL CPD - MAF

(Strategy)

1

Strategy and Risk management

Nicholas Riemer Nicholas.Riemer@firstrand.co.za

Agenda

• Workflow related to strategy
• Strategy recap? Generic Problem
• Strategy in the real world, industries?
• What is the specific problem in the case study?
• How to incorporate into your file

Strategy and Risk Workflow Approach

What is Strategy, generic problem?

• Where are we now?
• Assessment of current position of the entity and its environment
• Performance, resources, capabilities, strengths, weaknesses, economic conditions
• Where do we want to go?
• Entity’s vision/Objectives
• How are we going to get there?
• Strategy – Entities Plan of Action to achieve the Objectives

= Sustainable competitive advantage!!

What is Risk Management generic problem?

• Company sets objectives (Where do we want to

go?/Business/Financial

• IDENTIFICATION of Risk of not achieving strategic objectives
• ASSESSMENT of Risk
• Likelihood of occurrence
• Severity of risk
• RESPOND to risks identified and assessed
• Avoidance, transference, mitigation, acceptance

Strategy

• When to use a structured approach?
• How to identify “Triggers” in the scenario?
• How to develop a “Plan of Action”?
• Generic points(Industry Competitors, stakeholders, current strategy etc)
• Models
• Case study specific
• Conclusion NB

STRUCTURED APPROACH

• Porters 5 forces
• PESTEL
• SWOT

IF SPECIFICALLY STATED USE A PORTERS/PESTEL/SWOT IN THE CASE STUDY!!! USE THE RELEVANT STRUCTURES TO HELP YOU IN ANSWERING WHAT THEY ASKED! Helps to get your mind thinking:

• External Environment – PESTEL and PORTERS
• Internal Environment – SWOT (Strengths and Weaknesses)

TRIGGERS!

Problems with ALWAYS using a structured approach?

• Different Structures overlap each other
• e.g Threats in SWOT vs PESTEL
• Does using a particular structure necessarily cover all of the

strategic implications applicable to the scenario?

• Does a scenario fit exactly into a structure? (e.g. Porters)

NB!

NB Models for APT and APC.

• Mendelow’s matrix cont.:

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Interest Low High Power Low Minimal effort Keep informed High Keep satisfied Key players

External environment for APT NB swOT, Pestel, Porters

• Identify positives and negatives i.e. opportunities and threats
• All relevant factors need to be considered and monitored
• Industry and competitive environment generally have biggest impact on shaping strategy

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Company Immediate industry and competitive environment i.e. suppliers, buyers, substitutes, new entrants, rivals General economic conditions; laws and regulations; population demographics; societal values and lifestyles; technology

PESTEL analysis

• Framework used to analyse macro-environmental factors and identify opportunities and risks
• Fundamental factors – changes can lead to changes in industry

P = Political

• Influence of government and current political environment e.g. taxes, policies, trade restrictions, laws and

regulations, political stability etc.

E = Economic

• E.g. Economic growth, interest rates, exchange rates, inflation etc.

S = Social

• E.g. culture, accepted norms, demographics, changes in society e.g. ageing population

T = Technological

• Impact on entity of technology and advances in key areas e.g. research and development activity, automation,

pace of technological change

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PESTEL analysis cont.

E = Environmental

• Impact of natural environment on entity and vice-versa e.g. weather, climate change, pollution

L= Legal

• Laws, regulations and changes thereof
• Inter-relation between factors very important
• Regular review as a whole

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Porter’s Five Forces

• Used to assess strength of industry’s competitive forces
• Five forces affecting industry attractiveness:
• 1. Bargaining power of buyers
• 2. Bargaining power of suppliers
• 3. Threat of substitute products
• 4. Threat of new entrants
• 5. Rivalry among existing sellers to attract buyers

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SWOT analysis

• Taking stock of company’s internal Strengths and Weaknesses as well as external Opportunities

and Threats

• Provides overview of company’s overall situation
• Simple yet powerful tool – provides basis for crafting strategy that exploits company’s strengths,

aims at capturing best available opportunities and defends against threats

• Difference between:
• Strength vs opportunity
• Weakness vs threat
• Resource strengths and core competencies:
• E.g. strong financial position and resources to grow business; strong brand name or reputation;

economy of scale; learning curve advantage; important patents; great customer service etc.

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Evaluating company’s internal situation SWot

• Completes understanding of “where are we now”
• Five main areas:
• 1. How well company’s strategy is working
• 2. Company’s competitively important resources and capabilities
• 3. Competitiveness of company’s prices and costs
• 4. Competitive strength / weakness of company relative to rivals
• 5. Priority strategic issues and problems

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Other Strategic Analysis Tools

• Osterwalder/ Nine Building Blocks of a business model
• Ansoff Product-Market Matrix
• BCG growth-share matrix
• GEC Model
• Mendelows Matrix
• Nice to use when analysing companies, can point you in the right

direction.

FINANCIAL RISKS and MITIGATION techniques

• Types of Financial Risks
• Interest Rate Risk
• Exchange Rate Risk
• Commodity Price Risk
• Liquidity Risk
• Refinancing Risk
• Credit Risk
• Etc.
• Identify which of the above risks are applicable to the scenario

Specific Industry

• EXTERNAL!!!!!!!!!!!!!!
• What is the industry
• Listed competitors Integrated reports
• Interim financial statements
• SENS
• Models; Porters, OT, PESTEL
• General google search on what’s happening in the industry
• Strategy can always be triggered
• Qualitative aspects of investments.

Case Study

• Majority INTERNAL!!!!!!!!!!
• Will be looking at what the current strategy is
• Is this working
• Who are the stakeholders
• Where do they want to go
• What is the company doing to get there
• Then you will go and look at the external factors not given in the case

study.

• CTA/ITC External given. APT not given must research

File

• 1) Summary of models
• 2) Summary of Internal factors
• 3) Summary of External factors
• 4) Coverage, numbered triggers for strategy trigger if there
• 5) Rest of your notes below if needed.
• Good way to have all the points on hand for the day. And if not

triggered can look to incorporate into the finance tasks.