Strategic Management/Business Policy Power Point Set #1:Definitions of Strategy

*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

*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.

*

Identify current mission and strategic goals

Conduct competitive analysis:strengthsweaknessopportunitythreats

Develop specific strategies:corporatebusinessfunctional

carry out strategic plans

maintain strategic control

assess organisational factors

assess environmental factors

Strategy implementation

Strategy formulation

*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.

*Key Characteristics Of Strategic DecisionsImportant;

Typically, under some Uncertainty;

Involves Alternatives, Consequences, and Choice;

Significant Commitment of Resources; and

Not Easily Reversible.

*

Strategy Making : Design or Process?

Strategy as Design

Planning andrational choice

INTENDEDSTRATEGY

Many decision makersresponding to multitude ofexternal and internal forces

REALIZED STRATEGY

EMERGENT STRATEGY

Strategy as Process

Mintzbergs Critique of Formal Strategic Planning:The fallacy of prediction the future is unknownThe fallacy of detachment -- impossible to divorce formulation from implementationThe fallacy of formalization --inhibits flexibility, spontaneity, intuition and learning.

10

*

The Evolution of Strategic Management

DOMINANTTHEME

MAINISSUES

CONCEPTS&TECHNIQUES

IMPLEMENT-ATION

1950s1960sEarly-mid Late1970sLate 1980s Late 1990s1970s early 1980searly 1990s early 2000s

BudgetaryCorporateCorporate Analysis ofQuest for Strategicplanning &planningstrategy industry &competitive innovationcontrol competitionadvantage The New EconomyFinancial controlPlanning growthDiversifica- PositioningCompetitive Innovation & ionadvantage knowledge

BudgetingForecasting &Portfolio Analysis ofResource Dynamic project appraisalinvestmentplanning. industry &analysis. sources of planningSynergy competitionCase advantagemarket competences Knowledgeshare management cooperation

Emphasis onRise ofDiversifi- Industry/market Restructuring Virtual orga-financialcorporate planningcation. selectivity. BPR. nization.managementdepartmentsQuest for Active asset Refocusing Alliances & formalglobal management Outsourcing Quest forplanningmarket share critical mass

7

*

The Basic FrameworkStrategy: the Link between the Firm and its Environment

THE FIRM

Goals & Values

Resources &Capabilities

Structure & Systems

THE INDUSTRYENVIRONMENT

CompetitorsCustomersSuppliers

STRATEGY

STRATEGY

5

*

How Does It Compare to Other Business Classes?

We take the perspective of the organization in this class. We are not primarily concerned with the well-being of employees (OB), customers (marketing), or shareholders (finance). We are also not going to focus on the micro and macro environment facing the firm (economics). We are concerned with the performance of the entire organization. This means we must take all these perspectives into account, integrating the concepts together to look for win-win changes, and making serious tradeoffs while undertaking strategic decision making.

*Task EnvironmentCustomers 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

*Task EnvironmentRegulatory Groups: Government Unions Special Interest Groups

Technology:

Rate of DevelopmentSubstitutesStage of Product or Industry

*The Role of Strategy In Business is to Generate and Sustain Value via the Linkages Between Position, Resources, and Organization

*PositioningScope of the Firm:

Geographic Scope

Product-market Scope: Choice of businesses (corporate portfolio analysis)

Product Market Positioning within a business

Vertical integration decisions

*ResourcesTangible Resourcese.g., physical capital

Organizational Capabilitiese.g., routines and standard operating procedures

Intangible Resourcese.g., trademarks, know-how

*OrganizationStructureFormal Definition of authorityConflict Resolution

SystemsRules, Routines, Evaluation and rewards

ProcessesInformal communication, networks, recruitment

*Definitions of StrategyThe term strategy is intended to focus on the interdependence of the adversaries decisions and on their expectations about each others 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 organizations major goals, policies, and action sequences into a cohesive whole. A well formulated strategy helps to marshal and allocate an organizations 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)

*

Abells Framework for Defining the Business

11

*Defining the Business: The Starting Point of StrategyExample: 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

*Mission Statement and GoalsIt is the function of the top management team to provide the firms purpose or strategic intent.

Chester Barnard The Functions of the Executive

Alfred Sloan My Years with General Motors

Komatsu ---> Encircle CaterpillarCanon ---> Beat XeroxKodak ---> Be the leader in the imaging sectorCoca Cola ---> To put a Coke within arms reach of every consumer in the world.

*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)

*The Managers role in balancing expectationsBusiness Roundtable:Balancing the shareholders 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 firms performance.

*

Stakeholders and the Enterprise

FIGURE 2.1

*Key Drivers of Value Creation and Sustainable Competitive Advantage:

Generating economic value can be accomplished through:

REVENUE drivers

COST drivers

RISK drivers

1-*Value and Cost DriversFigure 2.5

*

Sources of Superior Profitability

RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL

How do we make money?

INDUSTRYATTRACTIVENESS

Which businesses should we be in?

COMPETITIVE ADVANTAGE

How should we compete?

CORPORATE STRATEGY

BUSINESS STRATEGY

16

*The Levels of StrategyCorporate - General ElectricBusiness - Home AppliancesFunctional - e.g., Production

*Corporate StrategyAt 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.

*

BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E McGraw-Hill Australia 2001

*

Managers as decision makers Assumptions of the Rational Model

Rationaldecisionmaking

An optimal decision is possible

All relevant information is available

All relevant information is understandable

All alternatives are known

All possible outcomes known

The rational model virtually ignores the high time constraints that most mangers face. Without the constant pressure to act either immediately or very soon, managers would have the luxury of being able to gather all relevant information, to understand that information, be sure that all alternatives are known, and perhaps to calculate all possible outcomes.

*

BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E McGraw-Hill Australia 2001

*

Managers as decision makers Satisficing

Satisficingdecisionmaking

Time constraints

Limited ability to understand all factors

Inadequate baseof information

Limited memory ofdecision-makers

Poor perception of factors to be considered in decision process

The satisficing model of decision making is instantly perceived by most mangers as being the most realistic. Time constraints are increasingly obvious in the modern workplace, and the wider marketplace.Making sense of all factors is a hurdle for most managers, none of them can be capable in every decisions circumstance.The market often contrives to limit available information for decision makers (consider deciding to buy new software. None of the vendors offer to identify deficiencies in their products, it is most often the purchaser who has to sort that out).Decision makers not only tend to make many decisions to cope with the immediate future, but equally they tend to retain memory of their most recent decision events.The factors that should have primacy in the making of a decision often dont become apparent until after the decision is made. Consider again a major software purchase. The purchase price of software support may not be seen as much of a factor until the software is in use, and users realise the very high levels of support needed for its use.

*

1-*

Improving Strategic Decision-Making

EscalatingCommitment

Representa-tiveness

Copyright

39

*

14-*

Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Symptoms of Groupthink and How to Prevent It

SymptomsIllusion of invulnerabilityBelief in the inherent morality of the groupStereotyped views of members of opposing groupsApplication of pressure to members who express doubts about the groups shared allusions or question the validity of arguments proposedPractice of self-censorshipAppointment of mindguards

*

14-*

Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Using Conflict-Inducing Decision-Making Techniques in Case Analysis

Use conflict-inducing decision-making techniques to help prevent groupthink and lead to better decisions.

*

14-*

Copyright 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

*

Our Learning Goals: Pushing Down Through Blooms Taxonomy

Knowledge: remember material; know terms, facts, procedures, basic conceptsComprehension: grasp meaning; understand facts, interpret charts, translate verbal to math estimate consequencesApplication: use material in new situations; apply concepts to real situations, follow a procedure

Analysis: break material into components & understand structure; recognize logical fallacies, distinguish fact and inference, evaluate relevancy of dataSynthesis: integrate parts to make a new whole, integrate learning to solve a problemEvaluations: judge logical consistency, judge whether conclusions are supported by facts

*Summary TakeawaysProviding PURPOSE is an important function for the executive.

One important purpose is to CREATE VALUE.

Value creation can lead to SUSTAINABLE COMPETITIVE ADVANTAGE.