strategic management/ business policy power point set #1: definitions of strategy
TRANSCRIPT
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The Wisdom of Choice:
“To try and fail is at least to learn; to fail to try is to suffer the inestimable loss of what might have been.”
– Chester Barnard, The Functions of the Executive
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What Is Strategic Management About?
Understanding how firms create, capture, and sustain competitive advantage.
Analyzing strategic business situations and formulating strategic plans.
Implementing strategy and organizing the firm for strategic success.
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Identify current mission and strategic goals
Conduct competitive analysis:•strengths•weakness•opportunity•threats
Develop specific strategies:•corporate•business•functional
carry out strategic plans
maintain strategic control
assess organisational factors
assess environmental factors
Strategy implementationStrategy formulation
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What Is Strategic Management About?
Sustainable competitive advantage occurs when a firm implements a value-creating strategy of which other companies are unable to duplicate the benefits or find it too costly to imitate.
An important basis for sustainable competitive advantage is the development of resources and capabilities.
Core competencies are resources and capabilities (often related to functional-level skills) that serve as a source of competitive advantage for a firm over its rivals.
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Key Characteristics Of Strategic Decisions
Important;
Typically, under some Uncertainty;
Involves Alternatives, Consequences, and Choice;
Significant Commitment of Resources; and
Not Easily Reversible.
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Strategy Making : Design or Process?Strategy Making : Design or Process?
Strategy as Design
Planning andrational choice
INTENDEDSTRATEGY
Many decision makersresponding to multitude ofexternal and internal forces
REALIZED STRATEGY
EMERGENTSTRATEGY
Strategy as Process
Mintzberg’s Critique of Formal Strategic Planning:•The fallacy of prediction – the future is unknown•The fallacy of detachment -- impossible to divorce formulation from
implementation•The fallacy of formalization --inhibits flexibility, spontaneity,
intuition and learning.
Mintzberg’s Critique of Formal Strategic Planning:•The fallacy of prediction – the future is unknown•The fallacy of detachment -- impossible to divorce formulation from
implementation•The fallacy of formalization --inhibits flexibility, spontaneity,
intuition and learning.
Strategy Making : Design or Process?Strategy Making : Design or Process?
Strategy as Design
Planning andrational choice
INTENDEDSTRATEGY
Many decision makersresponding to multitude ofexternal and internal forces
REALIZED STRATEGY
EMERGENTSTRATEGY
Strategy as Process
Mintzberg’s Critique of Formal Strategic Planning:•The fallacy of prediction – the future is unknown•The fallacy of detachment -- impossible to divorce formulation from
implementation•The fallacy of formalization --inhibits flexibility, spontaneity,
intuition and learning.
Mintzberg’s Critique of Formal Strategic Planning:•The fallacy of prediction – the future is unknown•The fallacy of detachment -- impossible to divorce formulation from
implementation•The fallacy of formalization --inhibits flexibility, spontaneity,
intuition and learning.
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The Evolution of Strategic ManagementThe Evolution of Strategic Management
DOMINANTTHEME
MAINISSUES
CONCEPTS&
TECHNIQUES
IMPLEMENT-ATION
1950s 1960s Early-mid Late1970s Late 1980s Late 1990s1970s early 1980s early 1990s early 2000s
Budgetary Corporate Corporate Analysis of Quest for Strategicplanning & planning strategy industry & competitive innovationcontrol competition advantage The “New
Economy”Financial control Planning growth Diversifica- Positioning Competitive Innovation &
ion advantage knowledge
Budgeting Forecasting & Portfolio Analysis of Resource Dynamic project appraisal investment planning. industry & analysis. sources of
planning Synergy competition Case advantagemarket competences Knowledgeshare management
cooperation
Emphasis on Rise of Diversifi- Industry/market Restructuring Virtual orga-financial corporate planning cation. selectivity. BPR. nization.management departments Quest for Active asset Refocusing Alliances
& formal global management Outsourcing Quest forplanning market share critical mass
The Evolution of Strategic ManagementThe Evolution of Strategic Management
DOMINANTTHEME
MAINISSUES
CONCEPTS&
TECHNIQUES
IMPLEMENT-ATION
1950s 1960s Early-mid Late1970s Late 1980s Late 1990s1970s early 1980s early 1990s early 2000s
Budgetary Corporate Corporate Analysis of Quest for Strategicplanning & planning strategy industry & competitive innovationcontrol competition advantage The “New
Economy”Financial control Planning growth Diversifica- Positioning Competitive Innovation &
ion advantage knowledge
Budgeting Forecasting & Portfolio Analysis of Resource Dynamic project appraisal investment planning. industry & analysis. sources of
planning Synergy competition Case advantagemarket competences Knowledgeshare management
cooperation
Emphasis on Rise of Diversifi- Industry/market Restructuring Virtual orga-financial corporate planning cation. selectivity. BPR. nization.management departments Quest for Active asset Refocusing Alliances
& formal global management Outsourcing Quest forplanning market share critical mass
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The Basic FrameworkStrategy: the Link between the
Firm and its Environment
The Basic FrameworkStrategy: the Link between the
Firm and its Environment
THE FIRM
Goals & Values
Resources &Capabilities
Structure & Systems
THE INDUSTRYENVIRONMENT
CompetitorsCustomersSuppliers
STRATEGYSTRATEGY
The Basic FrameworkStrategy: the Link between the
Firm and its Environment
The Basic FrameworkStrategy: the Link between the
Firm and its Environment
THE FIRM
Goals & Values
Resources &Capabilities
Structure & Systems
THE INDUSTRYENVIRONMENT
CompetitorsCustomersSuppliers
STRATEGYSTRATEGY
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How Does It Compare to Other Business Classes?
Mktg. Oper.
Strategy
Finance
Acctg. H.R.
Task environment
Macro level environment
The firm
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Task Environment
Customers and Markets: Distributors End users
Competitors: Competitors for Markets Competitors for Resources
Suppliers: Suppliers of physical resources Suppliers of financial resources Suppliers of human resources
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Task Environment
Regulatory Groups:
Government Unions Special Interest Groups
Technology:
Rate of DevelopmentSubstitutesStage of Product or Industry
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The Role of Strategy In Business is to Generate and Sustain Value via the Linkages Between Position, Resources, and Organization
Positioning
Resources& Capabilities
Organization
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Positioning
Scope of the Firm:
Geographic Scope
Product-market Scope: Choice of businesses (corporate portfolio analysis)
Product Market Positioning within a business
Vertical integration decisions
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Resources
Tangible Resourcese.g., physical capital
Organizational Capabilitiese.g., routines and standard operating procedures
Intangible Resourcese.g., trademarks, “know-how”
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Organization
StructureFormal Definition of authorityConflict Resolution
SystemsRules, Routines, Evaluation and rewards
ProcessesInformal communication, networks, recruitment
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Definitions of Strategy
The term “strategy” is intended to focus on the interdependence of the adversaries’ decisions and on their expectations about each other’s behavior” (Thomas Schelling The Strategy of Conflict)
“Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out those goals.” (Alfred D. Chandler Strategy and Structure)
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.” (James Brian Quinn, Logical Incrementalism)
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Abell’s Framework for Defining the Business
Who is beingsatisfied?
Customer Groups
What is beingsatisfied?
Customer Needs
How arecustomer needs
satisfied?Distinctive
Competencies
Definitionof Business
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Defining the Business: The Starting Point of Strategy
Example: Fall of the Railroads
“They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry wrong was because they were railroad oriented instead of transport oriented; they were product oriented instead of customer oriented.”
Theodore Levitt “Market Myopia”
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Mission Statement and Goals
It is the function of the top management team to provide the firm’s purpose or “strategic intent.”
Chester Barnard The Functions of the Executive
Alfred Sloan My Years with General Motors
Komatsu ---> “Encircle Caterpillar”Canon ---> “Beat Xerox”Kodak ---> “Be the leader in the imaging sector”Coca Cola ---> “To put a Coke within ‘arms reach’ of every consumer in the world.”
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Fundamental question of the choice of Goals: Planning for what purpose(s)?
Profitability (net profits)Efficiency (low costs)Market ShareGrowth (e.g., increase in total assets, sales, etc)Shareholder Wealth (dividends plus stock price appreciation)Utilization of Resources (e.g., ROE, ROI)ReputationContribution to Stakeholders (e.g., employees, society)Survival (avoid bankruptcy)
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The Manager’s role in balancing expectations
Business Roundtable:“Balancing the shareholder’s expectations of maximum return against other priorities is one of the fundamental problems confronting corporate management.”
Understanding corporate strategy means understanding the competing value claims of multiple stakeholders.
Stakeholders are the individuals and groups who can affect, and are affected by, the strategic outcomes achieved and who have enforceable claims on a firm’s performance.
23Copyright © 2001 Houghton Mifflin Company. All rights reserved. 2-2
FIGURE 2.1
Stakeholders and the EnterpriseStakeholders and the Enterprise
Contributions
Contributions
Inducements
Inducements
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Key Drivers of Value Creation and Sustainable Competitive Advantage:
Generating economic value can be accomplished through:
REVENUE drivers
COST drivers
RISK drivers
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Sources of Superior Profitability
RATE OF PROFIT ABOVE THE
COMPETITIVE LEVEL
How do we make
money?
INDUSTRY
ATTRACTIVENESS
Which businesses
should we be in?
COMPETITIVE ADVANTAGE
How should we compete?
CORPORATE STRATEGY
BUSINESS STRATEGY
Sources of Superior Profitability
RATE OF PROFIT ABOVE THE
COMPETITIVE LEVEL
How do we make
money?
INDUSTRY
ATTRACTIVENESS
Which businesses
should we be in?
COMPETITIVE ADVANTAGE
How should we compete?
CORPORATE STRATEGY
BUSINESS STRATEGY
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The Levels of Strategy
R&D
HR
Finance
Production
M ktg/Sales
D ivision A
R&D
HR
Finance
Production
M ktg/Sales
D ivision B
R&D
HR
Finance
Production
M ktg/Sales
D ivision C
C orpo rateH eadquarte rsCorporate - General Electric
Business - Home Appliances
Functional - e.g., Production
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Corporate Strategy
At the corporate level, value creation can occur if the individual parts of a firm are integrated into a coherent whole.
Corporate strategy is the way a company creates value through the configuration and coordination of its multi-market activities.
29BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E © McGraw-Hill Australia 20019
Managers as decision makersAssumptions of the Rational Model
Managers as decision makersAssumptions of the Rational Model
Rationaldecisionmaking
Rationaldecisionmaking
An optimal decision is possible
An optimal decision is possible
All relevant informationis available
All relevant informationis available
All relevant information is understandable
All relevant information is understandable
All alternatives are knownAll alternatives are known
All possible outcomes knownAll possible outcomes known
30BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E © McGraw-Hill Australia 200110
Managers as decision makersSatisficing
Managers as decision makersSatisficing
‘Satisficing’decisionmaking
‘Satisficing’decisionmaking
Time constraintsTime constraints
Limited ability to understand all factors
Limited ability to understand all factors
Inadequate baseof information
Inadequate baseof information
Limited memory ofdecision-makers
Limited memory ofdecision-makers
Poor perception of factorsto be considered
in decision process
Poor perception of factorsto be considered
in decision process
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1-40
Improving Strategic Improving Strategic DecisionDecision--MakingMaking
Prior Hypothesis
Bias
EscalatingCommitment
Reasoningby
Analogy
Representa-tiveness
Illusion of
Control
Copyright
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14-25Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Symptoms of Groupthink and How to Prevent It
• Symptoms
• Illusion of invulnerability
• Belief in the inherent morality of the group
• Stereotyped views of members of opposing groups
• Application of pressure to members who express doubts about the group’s shared allusions or question the validity of arguments proposed
• Practice of self-censorship
• Appointment of mindguards
Groupthink
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14-24Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Using Conflict-Inducing Decision-Making Techniques in Case Analysis
Groupthink
Devil’s Advocacy
Dialectical Inquiry
Use conflict-inducing decision-making techniques to help prevent groupthink and lead to better decisions.
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14-29Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Two Conflict-Inducing Decision-Making Processes
Adapted from Exhibit 14.4 Two Conflict-Inducing Decision-Making Processes
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O u r L e a r n i n g G o a l s : P u s h i n g D o w n T h r o u g h B l o o m ’ s T a x o n o m yO u r L e a r n i n g G o a l s : P u s h i n g D o w n T h r o u g h B l o o m ’ s T a x o n o m y
1 . K n o w l e d g e : r e m e m b e r m a t e r i a l ; k n o w t e r m s , f a c t s , p r o c e d u r e s , b a s i c c o n c e p t s
2 . C o m p r e h e n s i o n : g r a s p m e a n i n g ; u n d e r s t a n d f a c t s , i n t e r p r e t c h a r t s , t r a n s l a t e v e r b a l t o m a t h e s t i m a t e c o n s e q u e n c e s
3 . A p p l i c a t i o n : u s e m a t e r i a l i n n e w s i t u a t i o n s ; a p p l y c o n c e p t s t o r e a l s i t u a t i o n s , f o l l o w a p r o c e d u r e
1 . K n o w l e d g e : r e m e m b e r m a t e r i a l ; k n o w t e r m s , f a c t s , p r o c e d u r e s , b a s i c c o n c e p t s
2 . C o m p r e h e n s i o n : g r a s p m e a n i n g ; u n d e r s t a n d f a c t s , i n t e r p r e t c h a r t s , t r a n s l a t e v e r b a l t o m a t h e s t i m a t e c o n s e q u e n c e s
3 . A p p l i c a t i o n : u s e m a t e r i a l i n n e w s i t u a t i o n s ; a p p l y c o n c e p t s t o r e a l s i t u a t i o n s , f o l l o w a p r o c e d u r e
4 . A n a l y s i s : b r e a k m a t e r i a l i n t o c o m p o n e n t s & u n d e r s t a n d s t r u c t u r e ; r e c o g n i z e l o g i c a l f a l l a c i e s , d i s t i n g u i s h f a c t a n d i n f e r e n c e , e v a l u a t e r e l e v a n c y o f d a t a
5 . S y n t h e s i s : i n t e g r a t e p a r t s t o m a k e a n e w w h o l e , i n t e g r a t e l e a r n i n g t o s o l v e a p r o b l e m
6 . E v a l u a t i o n s : j u d g e l o g i c a l c o n s i s t e n c y , j u d g e w h e t h e r c o n c l u s i o n s a r e s u p p o r t e d b y f a c t s
4 . A n a l y s i s : b r e a k m a t e r i a l i n t o c o m p o n e n t s & u n d e r s t a n d s t r u c t u r e ; r e c o g n i z e l o g i c a l f a l l a c i e s , d i s t i n g u i s h f a c t a n d i n f e r e n c e , e v a l u a t e r e l e v a n c y o f d a t a
5 . S y n t h e s i s : i n t e g r a t e p a r t s t o m a k e a n e w w h o l e , i n t e g r a t e l e a r n i n g t o s o l v e a p r o b l e m
6 . E v a l u a t i o n s : j u d g e l o g i c a l c o n s i s t e n c y , j u d g e w h e t h e r c o n c l u s i o n s a r e s u p p o r t e d b y f a c t s