Strategy and Strategy Management Process

Chapter 1

Strategy

Definition: Strategy is a long term plan of action designed to achieve a particular goal, most often "winning."

Strategy is not a detailed plan or program of instructions. It is a unifying theme that gives coherence and direction to the actions and decisions of an individual or an organisation.

Strategy is differentiated from tactics or immediate actions with resources at hand by its nature of being extensively premeditated, and often practically rehearsed.

Strategic Management Process

Definition: Strategic Management Process is a sequential set of

analyses and choices that can increase the likelihood that a firm will choose a good strategy, which generates a competitive advantage.

It consists of the following: Mission Objectives External-Internal Analysis Strategic Choice Strategic Implementation

Mission

A firm’s mission is its long term purpose A broad statement of purpose and values Written down in the form of mission

statements Enron’s 1999 Annual Report read:

Integrity: We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; When we say we cannot or will not do something, then we won’t do it.

Objectives

They are specific measurable targets Easy to measure and track over time.

Consider for example: Mission Statement: Provide investors with an

attractive return through sustained quality growth.

Objective: At least 30% of our sales each year, from new products in the last 4 years. (From products that are not more than 4 years old)

Excercise

Write objectives for each of the following mission statements: We will be a leader in pharmaceutical

innovations Customer satisfaction is our primary goal We promise on-time delivery Product Quality is our first priority

External and Internal Analysis

They occur more or less simultaneously External analysis helps in identification of critical

threats and opportunities in the competitive environment.

Internal analysis helps a firm directly identify its organizational strengths and weaknesses.

It helps the firm to find out the important resources and capabilities

Helps in identifying areas requiring improvement and change.

Strategic Choice

Two main categories: A) Business-Level Strategy:

Actions taken by a company to gain competitive advantage in a single market or industry.

Answers: How to compete in this business? Three main strategies followed by companies at

the Business Unit Level are: Cost Leadership Differentiation Focus

Strategic Choice

B) Corporate-Level Strategy: Actions taken by a firm to gain competitive

advantages by operating in multiple markets or industries simultaneously.

Answers: What businesses should we be in? Common Corporate level strategies include:

A) Vertical Integration Strategies B) Diversification Strategies C) Strategic Alliance Strategies D) Merger and Acquisition Strategies

Strategy Implementation

Actions speak louder than words…. Three specific requirements for

successful implementation: A firm’s formal organizational structure Its formal and informal management

control systems Employee compensation policies

Competitive Advantage

In general, a firm has a competitive advantage when it can create more economical value than its rival firms.

Economical Value = Perceived benefits for customers availed from the product or service – Full economic cost of that product/service.

It can be temporary or sustained as compared to the competition.

1) Competitive Advantage Temporary Sustained

2) Competitive Parity 3) Competitive Disadvantage

Temporary Sustained

Sustaining Competitive Advantage

According to Traditional economic theory: CA is very short lived Easily Identified, imitated by others

However, it is found that firms that operate in industries: Are informationally complex Require extensive knowledge of customers Require High R&D Require Significant economies of scale

Emergent Versus Intended Strategies

Intended strategies: FedEx

Emergent Strategies: They emerge over-time. It means that the intended strategy has to be modified partly and emerge over time, or they have to be radically reshaped.

Johnson & Johnson

INTENDED STRATEGY

DELIBERATE STRATEGY UNREALIZED STRATEGY

REALIZED STRATEGY EMERGENT STRATEGY

Crap!!! Why is it necessary to know about strategy????

1) Provides tools you need to evaluate strategies of the firms you work for

2) Understanding the firm’s strategies and your role in its implementation is very important for personal success.

3) Big fish in a small pond or a small fish in a big pond?

Group Discussion Time

Both external and internal analyses are important in the strategic management process. Is the order in which these analyses conducted important? If yes, which should come first and why? If no, why not?