Strategic Management

Engineering ManagementEngineering Management

ELE 2EMTELE 2EMT

George AlexanderGeorge AlexanderG.Alexander@latrobe.edu.auhttp://www.latrobe.edu.au/eemanage/

Lecture 7Lecture 714 September 200714 September 2007

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Last Lecture The planning processThe planning process

– Major compMajor componentsonents

– Organisational missionOrganisational mission

Nature of organisational Nature of organisational goalsgoals– Benefits of goals, levels of Benefits of goals, levels of

goalsgoals

Goals and performanceGoals and performance– Goal content, goal Goal content, goal

commitment, work commitment, work behaviour, other process behaviour, other process componentscomponents

– Possible problems with Possible problems with goalsgoals

Linking goals and plansLinking goals and plans– Levels of plans, extent of Levels of plans, extent of

recurring use, time spans recurring use, time spans of goals and plans, plans of goals and plans, plans and promoting innovation, and promoting innovation, possible obstacles to possible obstacles to planningplanning

Management by Management by ObjectivesObjectives– Steps in the MBO processSteps in the MBO process

– Strengths and weaknesses Strengths and weaknesses of MBOof MBO

– Assessing MBOAssessing MBO

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This week

The concept of strategic managementThe concept of strategic management Competitive analysis in strategy formulationCompetitive analysis in strategy formulation Formulating corporate level strategyFormulating corporate level strategy Formulating business level strategyFormulating business level strategy Strategy implementationStrategy implementation

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Business Planning Framework

Where are we now?Where are we now? What business are we in?What business are we in? Where do we want to go?Where do we want to go? What is necessary to close the gap?What is necessary to close the gap? How do we make it all happen?How do we make it all happen?

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The Concept of Strategic Management

Most well-run organisations try to develop and follow Most well-run organisations try to develop and follow strategies, which are large-scale action plans for strategies, which are large-scale action plans for interacting with the environment to achieve long-term interacting with the environment to achieve long-term goals (goals (Jauch & Glueck 1988; Pearce & Robinson 1988Jauch & Glueck 1988; Pearce & Robinson 1988).).

It is important to recognise that strategic management It is important to recognise that strategic management is oriented towards:is oriented towards:– Achieving long-term goals,Achieving long-term goals,

– Weighs important environmental elements,Weighs important environmental elements,

– Considers major internal organisational characteristics, andConsiders major internal organisational characteristics, and

– Involves specific strategy development. Involves specific strategy development.

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The Strategic Management Process

Strategy Formulation:Strategy Formulation:– Identify organisational mission and strategic goalsIdentify organisational mission and strategic goals

– Perform competitive situation analysis, considering both Perform competitive situation analysis, considering both external environment and internal organisational factors.external environment and internal organisational factors.

– Develop the strategies to reach the strategic goalsDevelop the strategies to reach the strategic goals

Strategy Implementation:Strategy Implementation:– Effective implementation of the strategic planEffective implementation of the strategic plan

– Brilliantly formulated strategies will not succeed if they are Brilliantly formulated strategies will not succeed if they are implemented ineffectivelyimplemented ineffectively

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The Importance of Strategic Management

The process helps organisations to identify and The process helps organisations to identify and develop a competitive advantage.develop a competitive advantage.

It provides direction such that the organisation knows It provides direction such that the organisation knows where to expend its efforts.where to expend its efforts.

It demonstrates the need for innovation in the It demonstrates the need for innovation in the organisation – new ways of thinking and doing things.organisation – new ways of thinking and doing things.

It can involve managers at various levels in the It can involve managers at various levels in the planning process. This makes it more likely that the planning process. This makes it more likely that the plans will be understood and committed to. plans will be understood and committed to.

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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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Conducting Competitive Analysis

Strengths on which to capitalise,Strengths on which to capitalise, Weaknesses you need to address,Weaknesses you need to address, Opportunities available to you, andOpportunities available to you, and Threats that could adversely affect you.Threats that could adversely affect you.

SWOT AnalysisSWOT Analysis

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SWOT Analysis

KeyKeyStrengthsStrengths

KeyKeyWeaknessesWeaknesses

KeyKeyOpportunitiesOpportunities

KeyKeyThreatsThreats

Most LikelyMost Likely

PossiblePossible

PossiblePossible

UnlikelyUnlikely

Internal FactorsInternal Factors

External FactorsExternal Factors

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Organisational Assessment

Organisational culture

Information systems (up-to-date)?

Liquidity (and other financial

dimensions)

Skills levels (competency profiles)

Organisational structure

(flexibility)

Tangible assets (buildings

and equipment)Sales and

distribution channels

The organisation’s strengths and weaknesses:

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Environmental Assessment

The organisation

The organisation Social Analysis

Political & Regulatory Analysis

Political & Regulatory Analysis

Human Resources Analysis

Human Resources Analysis

Industry and Market AnalysisIndustry and Market Analysis

Competitor AnalysisCompetitor Analysis

Economic AnalysisEconomic Analysis

Technological AnalysisTechnological Analysis

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Levels of Strategy

Corporate-Level StrategyCorporate-Level Strategy– the businesses an organisation will operatethe businesses an organisation will operate

– co-ordination of strategiesco-ordination of strategies

– allocation of resourcesallocation of resources

Business-Level StrategyBusiness-Level Strategy– strategic business unitsstrategic business units

– focusing on a particular businessfocusing on a particular business

Functional-Level StrategyFunctional-Level Strategy– managing functional area to support business-level strategymanaging functional area to support business-level strategy

– the day-to-day management of businessthe day-to-day management of business

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Formulating functional-level strategy

Functional level strategies spell outFunctional level strategies spell out

how functional areas can bolsterhow functional areas can bolster

business-level strategy.business-level strategy.

Example: An R&D department might accelerate Example: An R&D department might accelerate innovation to provide new products before innovation to provide new products before competitors.competitors.

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CORPORATESTRATEGY

OperationsManagement

Strategy

R & DStrategy

Financial/Accounting

Strategy

MarketingStrategy

Human ResourcesStrategy

Business 1Strategy

Business 2Strategy

Business 3Strategy

Corporate LevelCorporate Level

Functional LevelFunctional Level

Business LevelBusiness Level

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Co-ordinating Levels of Strategy

Co-ordinating strategies across the levels is critical to Co-ordinating strategies across the levels is critical to maximising strategic impactmaximising strategic impact

Business-level strategy is enhanced when functional-Business-level strategy is enhanced when functional-level strategies support it.level strategies support it.

Corporate-level strategy will have more impact when Corporate-level strategy will have more impact when supported by business-level strategies complementing supported by business-level strategies complementing each other.each other.

Thus, the three levels must be co-ordinated as part of Thus, the three levels must be co-ordinated as part of the Strategic Management.the Strategic Management.

Top-Down or Bottom-Up approach ?Top-Down or Bottom-Up approach ?

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Strategy implementation

Carrying out strategic plansCarrying out strategic plans TechnologyTechnology Human resourcesHuman resources Reward systemsReward systems Decision processesDecision processes StructureStructure

Maintaining strategic controlMaintaining strategic control Monitoring environmentMonitoring environment Assessing effects of actionsAssessing effects of actions Monitoring resultsMonitoring results

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liquidation

bankruptcy

Diversification

Vertical integration

concentration

divestiture

turnaround

harvest

Defensive

Stability

Growth

GRANDSTRATEGIES

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Growth Strategy

ConcentrationConcentration– Market developmentMarket development

– Product developmentProduct development

– Horizontal integrationHorizontal integration

Vertical IntegrationVertical Integration– Backward integration, business grows by becoming its own Backward integration, business grows by becoming its own

suppliersupplier

– Forward integration, business growth encompasses a role Forward integration, business growth encompasses a role previously fulfilled by a customerpreviously fulfilled by a customer

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Growth Strategy - Cont.

DiversificationDiversification– Conglomerate diversification when an organisation Conglomerate diversification when an organisation

diversifies into areas unrelated to its current businessdiversifies into areas unrelated to its current business

– Concentric diversification when an organisation diversifies Concentric diversification when an organisation diversifies into related, but distinct, businessinto related, but distinct, business

Growth strategies can be implemented by:Growth strategies can be implemented by:– Internal growthInternal growth

– An acquisitionAn acquisition

– A mergerA merger

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Stability Strategy

Maintaining the status quo or growing in a methodical, Maintaining the status quo or growing in a methodical, but slow, manner.but slow, manner.

Adopted by small privately owned businessesAdopted by small privately owned businesses Reasons for adopting this strategy:Reasons for adopting this strategy:

– Avoid riskAvoid risk

– Provide an opportunity to recover after a period of an Provide an opportunity to recover after a period of an accelerated growthaccelerated growth

– Lets company hold on to current market shareLets company hold on to current market share

– May occur through defaultMay occur through default

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Defensive Strategy

Harvest entails minimising investments while attempting to maximise short-run profits and cash flow, with the long-run intention of exiting the market.

A turnaround is designed to reverse a negative trend and restore the organisation to appropriate levels of profitability.

A divestiture involves an organisation's selling or divesting of a business or part of a business.

Liquidation entails selling or dissolving an entire organisation

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Strategy implementation – some obstacles in real life

Overwhelmed by day to day events

Absence of budget/resources to implement

Perceived lack of management commitment

Leads to lack of real commitment

Credibility of the plan

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References

Bartol, K.M., Martin, D.C., Tein, M., & Matthews, G., Bartol, K.M., Martin, D.C., Tein, M., & Matthews, G., “Management A Pacific Rim Focus”, McGraw-Hill, “Management A Pacific Rim Focus”, McGraw-Hill, 2002.2002.

Thanks for your attentionThanks for your attention