Introduction to Business Strategy

Prof. Megha Trivedi

What is Strategy???

The strategy is about winning !

The Characteristics of Strategic Decisions

Strategy is concerned with the long term direction of an organization.

It is concerned with the Scope of an organization's activities.

It is to achieve advantage for the organization over competitors.

It is a search for Strategic Fit with the business environment. (addressing changes)

It creates opportunities by building on an organization's recourses and competences. (skills, assets, finance, relationships, technical competence, facilities)

The strategy is affected not only by the environmental forces and strategic capabilities but also by the values and expectations of those who have power in an organization.

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Elements of successful strategy

Successful implementation

Well defined long-term

goals

Appraisal of the environment

Knowledge of own resources & capabilities

Successful Strategy

R. Grant “Contemporary Strategy Analysis”, 2000

Johnson and Scholes define strategy as follows "Strategy is the direction and

scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations".

- Is a continuous, interactive process aimed at keeping an organization as a whole appropriately matched to its environment

(Peter, 1988)

- A company’s strategy consists of the competitive efforts and business approaches that managers employ to please customers, compete successfully and achieving organizational objects

(Thompson & Strickeland, 2003)

A strategy is the pattern or plan that integrates an organization’s major goals, policies and action sequences into a cohesive whole. A well-formulated strategy helps to marshal and allocate an organization’s resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment and contingent moves by intelligent opponents.

(Quinn)

A company’s strategy is management’s game plan for growing the business, staking out a market position, attracting and pleasing customers, competing successfully, conducting operations, and achieving targeted objectives

Corporate Strategy

The pattern of major objectives, purposes or goals and essential policies or plan for achieving those goals, stated in such way as to define what business the company is in or to be in and the kind of company it is or is to be.

Why is corporate strategy important?

It deals with major, fundamental issues that affect the

future organisation◦ It involves the entire organisation◦ It involves the survival and development of the

organisation◦ Covers the range and depth of the

organisation’s activities◦ Directs the changing and evolving relationship

of the organisation with its environment◦ Is central to the development of sustainable

competitive advantage◦ Is crucial to adding value

Some of the consequences of strategic decisions are:

Strategic decisions can be complex in nature(geographic scope)

Uncertainty about the future.It can affect operational

decisions (finding new suppliers, building strong brand)

Integration (outside and inside the organization

Relationships and network outside the organization

Strategic decisions involves considerable change for e.g. Mergers

Levels of StrategyCorporate Level Strategy: It is

concerned with the overall purpose and scope of an organization and how values will be added to the different parts (business units) of the organization ie. Geographical coverage, diversity of products/ services or business units and how recourses should be allocated to different parts of an organization.

Corporate strategy is often stated explicitly

in a "mission statement".

Business Level Strategy (SBU): It is about how to successfully compete in a particular market to increase the long term profitability and market share growth.

It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc.

Corporate-level strategy involves decisions about

the organisation as a whole, strategic decisions are related to strategic business units (SBU)

SBU is a part of an organisation for which there is a distinct external market for goods or services that is different from another SBU

Operational Strategy - is concerned with how each part of the business is organized to deliver the corporate and business-unit level strategic direction. Operational strategy therefore focuses on issues of resources, processes, people etc.

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Levels of Strategies

Corporate HQ

SBU A SBU B SBU C

ManufacturingMarketingAccountingHR….

Corporate strategy

Competitive strategy

Functional strategies

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Content of strategy at different levels

corporate

SBU

Function

Portfolio and resource allocation

How to compete

Product, marketPlans…

Vocabulary of Strategy

Mission - Overriding purpose in line with values/expectations of stakeholder e.g Be healthy and fit

Vision or strategic intent -Desired future state: the aspiration of the organization e.g. To run the London Marathon

Goal - General statement of aim or purpose e.g. Lose weight and strengthen muscles

Objective - Quantification or more precise statement of goal

e.g. Lose 5 kilos by 1stSeptember & run the marathon next year

• Strategic capability - Resources, activities and processes: some will be unique and provide competitive advantage e.g. Proximity to a fitness centre; a successful diet (unique recourses and core competence)

• Strategies- Long term direction e.g. Exercise regularly, compete in marathons locally, stick to appropriate diet

• Business model - How product, service and information flow between participating parties e.g. Associate with a collaborative network (join a running club)

• Strategic Control- Monitoring of action steps to (a) assess effectiveness (b) modify strategies/actions e.g. Monitor weight, kilometers run and measure times. If progress satisfactory, do nothing. If not, modify strategies/actions

British Airways and the vocabulary of strategy

Vision ◦ ‘The BA Way’ – Service that matters for people who

value how they fly Goals

◦ Profitability (operating margin 10% target)◦ Customer advocacy (the number of customers who

recommend BA)◦ Safety and security (the number of customers who

feel safe with BA)◦ Respected company (the number of community

stakeholders who respect BA)◦ Employee motivation (the number of employees

who feel motivated to deliver BA’s goals) Values

◦ The BA Way is based on five core values: Understanding, Focused, Cost-conscious, Supportive, Trustworthy

Strategies The BA Way provides a high level

statement of Strategies:- To be the best UK based network- To understand customers better than

competitors- To develop a powerful brand that

people know and trust.- To establish a competitive cost base.- To work together as one team.

Competitive Strengths

◦ A « full service » airline with a strong brand identity, associated with high standards of service, comfort and safety

◦ Clearly defined and well-branded products targeting specific customer segments

◦ Membership of the One World Alliance providing customers with a far more extensive network than BA could provide alone

◦ Dominance of national and international slot allocations at London Heathrow airport

◦ A modern, flexible and cost-effective aircraft fleet

◦ As a listed company, BA must satisfy shareholder expectations, achieving profitability through a combination of service quality and operational efficiency

Strategic Management

It includes understanding the strategic position of an organization, strategic choices for the future and turning strategy into action.

Exhibit 1.3 A model of the elements of strategic management

The Strategic Position

It is concerned with the impact of strategy of the of the external environment, an organization's strategic capability (recourses and competence) and the expectations and influence of stakeholders

The Environment- Impact of complex political, economical, social, technological, environmental and legal world on the organization. It can create opportunities or prove to be a threat.

The Strategic Capability - It is with the help of resources and competence that an organization achieves competitive advantage. The aim of strategic capability is to find out the strengths and weaknesses in an organization

Expectations and Purposes – Expectation depends on the power in the organization

It is important to understand strategic position to form a view of the key influences on the present and future well being of an organization, and what opportunities and threats are created by the environment, the capabilities of the organization and the expectations of stakeholders.

Strategic ChoicesIt involves understanding the

underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development

1. Business Level Strategy : Identifying the bases of competitive advantage.

2. Corporate Level Strategy: It is concerned with relationship between the separate parts of the business and how the corporate ‘parent’ adds values to these various parts.

Corporate level Strategy includes

decisions about the portfolio of product and /or businesses and the spread of market.

3. Development Directions and Methods: It is concerned with development in different directions i.e. New product, new market, different customers with different methods like growing current business, mergers and acquisitions and /or strategic alliances with other organizations.

Strategy into ActionIt is concerned with ensuring that

strategies are working in practice.

1. Structuring : Coordinating the activities to support successful performance. This includes organizations structures, processes and relationships (and the interaction between these elements.

2. Enabling : Enabling success through the way in which the separate resource area i.e. People, Information, Finance, and Technology of an organization support strategies.

The reverse is also important to success, namely the extent to which new strategies are built on the particular recourses and competence strength of an organization.

3. Managing Change: Managing strategy very often involves change.

How to manage change?Different types of role of people n

managing change?Organizations approach towards

change?

Strategy Development ProcessesThe way in which strategy develops in an

organization.

1. Intended Strategies: Strategy development as deliberate management intent

2. Emergent Strategies : Strategy emerging out of the social and political processes that exist in and around all organizations

* It is normal for strategy to develop through a complex combination of these various processes.

The Strategic Process

Analysis of environment

Strategy Development and

implementation

Identification of vision, mission,

and objectives

Analysis of resources

Constant monitoring

Constant monitoring

Strategic analysis Strategic development and implementation

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Tesco’s current strategy is clearly stated in its annual report.

1. to develop and maintain the core business

2. to expand its non-food range (TVs, computers clothes; cosmetics and toiletries).

3. to expand services: on-line shopping, credit cards, utility payments etc (in association with the Royal Bank of Scotland).

4. international expansion through a steady series of joint ventures and acquisitions in Central Europe and Asia

The following quotations from Porter (1996) and Porter (2001)5 capture the gist of this most recent thinking:

1. “The goal of strategy is to achieve a “superior long-term return on investment.”

“Economic value is created when customers are willing to pay a price for a product or service that exceeds the cost of producing it.” (Porter 2001, p.71)

2. “Competitive strategy is about being different.” (Porter 1996, p.64)

3. “Strategy is the creation of a unique and valuable position, involving a different set of activities…. different from rivals” (Porter 1996, p.68)

4. “Strategy is making tradeoffs in competing” (Porter 1996, p.70)

5. “Strategy defines how all the elements of what a company does fit together.” (Porter 2001, p.71)

6. “Operational effectiveness and strategy are both essential to superior performance, which, after all, is the primary goal of any enterprise. But they work in different ways.” (Porter 1996, p.61)

7. “Operational effectiveness means performing similar activities better than rivals perform them.” (Porter 1996, p.62)

8. “Strategy involves continuity of direction.” (Porter 2001, p.71)