Strategic Management – TMO2100

- Basics of Strategic Management - 2. lecture and seminars – 28-29.09.2005

Marko Rillowww.rillo.ee

Chair of Organisation and Management

JUHAN JUURIKAS

Remembered to Take along Your Name Tag?

How are you doing?

Any problems so far with … Downloading materials for last course? Web-based forum? Getting hands on HBR?

Homework? Who has done it properly? Who has taken the original case study and/or solution along? 3 selected case studies get 5 minutes of presentation time Audience: please follow and ask at least one question everyone

What were in your opinion 5 biggest headlines on strategic management? To help you, there are some sites that you may follow:

In the world? http://news.bbc.co.uk/1/hi/business/ - free http://www.economist.com/ - fully available in EBSCO database http://www.ft.com/ - pay service, you may look few selected

texts http://finance.yahoo.com/ - free http://www.business2.com/ - free

In Estonia? http://www.baltictimes.com/ - short summary of news only http://www.balticbusinessnews.com/ - only headlines

Introduction to Strategic Management

Group discussion questions:

How would you define … Strategy? Tactics? Organisation? Management? Strategic management?

How would you see the role of a strategic manager? I.e. what does a good strategic thinker/actor in any organisation have to do?

What would be the actual actions that are carried out when organisation plans, implements and analyses its strategies?

Brief History of Strategic Management

Strategy’s Military Roots Battlefield strategies to gain an edge on the enemy

Academic Origins of Strategic Management Mainstream economic theory Scientific management (Taylor) Bureaucratic organizations (Weber) Administrative functions/open systems (Barnard)

The 1960s Strategic management established as separate field

The 1970s and 1980s Process researchers (“how” strategy is formed) Content researchers (“what” of a strategic decision)

History of Strategic Planning and Thinking

Military Strategy: 4000 B.C. The Harvard School 1962 (Bain) Strategic Planning 1966 (Learned, Anderson, Bain) Structure-Conduct-Performance (SCP) 1968 (Learned,

Anderson, Bain) Porter First Publishes Work on Industry and Firm Analysis

(1975, 1980) Porter Continues to Publish (1985) and continues(1990)

and continues … (1998) Resource-Based View of the Firm Wernerfeldt (1984),

Barney (1986) Complexity Theory, Chaos Theory, and Non-linear

Dynamics, other concepts …

Key Concepts

Strategy: Mintzberg: strategy as five P-s: plan, pattern, position,

perspective and ploy Strategic management

Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives

Goal-directed decisions and actions in which its capabilities and resources are matched with the opportunities and threats in its environment

Strategic plan Company game plan

What is Strategy? (M. Porter)

Strategy is the creation of a unique and valuable position, involving a different set of activities.

Economist’s perspective Strategy requires a firm to make trade-offs in competing.

Not doing is also a strategy! Strategy involves creating “fit” among a company’s

activities. Synergy!

What is Strategy? (cont)

Strategy as revolution Hamel (1996)

Strategy as a pattern Mintzberg and Waters (1985)

Strategy as creativity Stacey (1996)

Strategy as ecological adaptation De Geus (1997)

Many companies don’t have strategies Strategy as hindsight?

What is Strategy? (cont)

The essence of strategy is choosing to perform activities differently than rivals do

Where is our strategic plan? Does it leave room for slack?

Art of balancing between short-term and long-term perspectives

Strategy as an interface between external and internal environment

Game Theory

Player A

A’s Strategy 1

A’s Strategy 2

B’s Strategy 1 B’s Strategy 2

Player B

1

2

A’s payoff when A takes

Strategy 1

B’s payoff when B takes

Strategy 1

Love Game

John

Movie

Basketball

Movie BasketballMary

1

2

0

0

0

0

2

1

Prisoner’s Dilemma

B

Confession

Silence

Confession SilenceA

3

3

4

1

1

4

2

2

Gaming Business (cont.)

Company A Company B

Large

Small

Small

Small

Large

Large

(1 , 1 ) Situation D

(3 , 2 ) Situation C

(2 , 4 ) Situation A

(4 , 3 ) Situation B

Company A’s Payoff Company B’s Payoff

10 Schools of Management (Mintzberg)

1. Design2. Planning3. Positioning

4. Entrepreneurial5. Cognitive6. Learning

7. Power8. Cultural9. Environmental

10. Configuration

Lets Get to Business!Introduction to Strategy Process

Strategy Process

Strategy Process

Analysis

Strategy Formulation

Strategy Implementation

Strategy Evaluation

Strategic Analysis

First stage in strategic management, equal to ‘thinking’ What is organisational context External analysis Internal analysis

Strategy formulation - traditional components

Vision & Mission

Strategy Formulation

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Key Issues in Strategy Formulation

Observation of businesses, looking options and making decisions:

New Business opportunities Businesses to abandon Allocation of resources Expansion or diversification or focusing International markets Mergers or joint ventures Avoidance of hostile takeover

Traditional Steps in Strategy Implementation

Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

Key Issues in Strategy Implementation

“Action Stage of Strategic Management” Most difficult stage Mobilization of employees & managers Interpersonal skills critical Consensus on goal pursuit

Traditional Steps in Strategy Evaluation

Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions

Key Issues in Strategy Evaluation

“Review Stage of Strategic Management” Subject to future modification Today’s success no guarantee of future success New & different problems Complacency leads to demise

Basic Tools for Strategy Analysis – SWOT and TOWS

SWOT Analysis

Opportunities1.2.… etc

Strengths1.2.… etc

Threats1.2.… etc

Weaknesses1.2.… etc.

Internal Environment

ExternalEnvironment

Positive Negative

TOWS Analysis

Weaknesses:1.2.3.

Strengths:1.2.3.

WO StrategiesUse opportunities to

overcome weaknesses

SO StrategiesUse strengths to take advantage of opportunities

Opportunities:1.2.3.

WT StrategiesDefensive strategies

to minimize weaknesses and

avoid threats

ST StrategiesTake advantage of

strengths to avoid

threats

Threats:1.2.3.

From Internal Analysis

From External Analysis

Source: Weihrich

Homework for Tuesday, 04.10

Take the case study uploaded under the course materials and do both SWOT and TOWS analyses for the case company

You may do the analysis in groups of 4 people Upload it to course forum before our seminar on Tuesday

morning 9.00 – please indicate your group Be prepared to present it on Tuesday morning as a group