Download Strategic Management/ Business Policy

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
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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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assess
environmental
factors
Identify
current
mission
and
strategic
goals
Strategy formulation Strategy implementation
Conduct
competitive
analysis:
•strengths
•weakness
•opportunity
•threats
Develop
specific
strategies:
•corporate
•business
•functional
carry out
strategic
plans
maintain
strategic
control
assess
organisational
factors
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What Is Strategic Management About?
Sustainable competitive advantage
occurs when a firm implements a valuecreating 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
Not Easily Reversible
Significant Commitment Of Resources
Involves Alternatives,
Consequences, and Choice
Some Level of Uncertainty
Typically Involved
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Strategy
Strategy Making
Making :: Design
Design or
or Process?
Process?
Strategy as Design
Strategy as Process
Planning and
rational choice
Many decision makers
responding to multitude of
external and internal forces
INTENDED
STRATEGY
EMERGENT
STRATEGY
REALIZED STRATEGY
Mintzberg’s
Mintzberg’sCritique
Critiqueof
ofFormal
FormalStrategic
StrategicPlanning:
Planning:
•The
fallacy
of
prediction
–
the
future
•The fallacy of prediction – the futureisisunknown
unknown
•The
fallacy
of
detachment
-impossible
•The fallacy of detachment -- impossibleto
todivorce
divorceformulation
formulationfrom
from
implementation
implementation
•The
•Thefallacy
fallacyof
offormalization
formalization--inhibits
--inhibitsflexibility,
flexibility,spontaneity,
spontaneity,
intuition
intuitionand
andlearning.
learning.
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The
The Evolution
Evolution of
of Strategic
Strategic Management
Management
DOMINANT
THEME
MAIN
ISSUES
CONCEPTS
&
TECHNIQUES
IMPLEMENTATION
1950s
1960s
Early-mid Late1970s
1970s
early 1980s
Late 1980s Late 1990s
early 1990s early 2000s
Budgetary
planning &
control
Corporate
planning
Corporate
strategy
Quest for
competitive
advantage
Financial control
Planning growth
Diversifica- Positioning
ion
Competitive
advantage
Budgeting
project appraisal
Forecasting &
investment
planning
Portfolio
planning.
Synergy
market
share
Resource
analysis.
Case
competences
Emphasis on
financial
management
Rise of
corporate planning
departments
& formal
planning
DiversifiIndustry/market
cation.
selectivity.
Quest for
Active asset
global
management
market share
Analysis of
industry &
competition
Analysis of
industry &
competition
Strategic
innovation
The “New
Economy”
Innovation &
knowledge
Dynamic
sources of
advantage
Knowledge
management
cooperation
Restructuring Virtual orgaBPR.
nization.
Refocusing
Alliances
Outsourcing
Quest for
critical mass
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The
The Basic
Basic Framework
Framework
Strategy:
Strategy: the
the Link
Link between
between the
the
Firm
Firm and
and its
its Environment
Environment
THE FIRM
Goals &
Values
Resources &
Capabilities
Structure &
Systems
STRATEGY
STRATEGY
THE
INDUSTRY
ENVIRONMENT
Competitors
Customers
Suppliers
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How Does It Compare to Other
Business Classes?
Macro level
environment
Task
environment
Finance
Mktg.
Strategy
Acctg.
Oper
.
H.R.
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
Union
Special Interest Groups
Technology
Rate of Development
Substitutes
Stage 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 Resources
e.g., physical capital
Organizational Capabilities
e.g., routines and standard
operating procedures
Intangible Resources
e.g., trademarks, “know-how”
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Organization
Structure
Formal Definition of authority
Conflict Resolution
Systems
Rules, Routines, Evaluation and rewards
Processes
Informal 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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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 Share
Growth (e.g., increase in
total assets, sales, etc)
Shareholder Wealth (dividends
plus stock price appreciation)
Utilization of Resources
(e.g., ROE, ROI)
Reputation
Contribution 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.
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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
INDUSTRY
ATTRACTIVENESS
RATE OF PROFIT
ABOVE THE
COMPETITIVE
LEVEL
How do we
make
money?
Which
businesses
should we be
in?
CORPORATE
STRATEGY
COMPETITIVE
ADVANTAGE
How should
we compete?
BUSINESS
STRATEGY
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The Levels of Strategy
Corporate
Headquarters
Corporate - General Electric
Business - Home Appliances
Functional - e.g., Production
Division A
Division B
Division C
R&D
R&D
R&D
HR
HR
HR
Finance
Finance
Finance
Production
Production
Production
Mktg/Sales
Mktg/Sales
Mktg/Sales
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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.
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An
An optimal
optimal decision
decision
isis possible
possible
All
All relevant
relevant information
information
isis available
available
All
All relevant
relevant information
information isis
understandable
understandable
All
All alternatives
alternatives are
are known
known
Managers
Managers as
as
decision
decision makers
makers
Assumptions
Assumptions of
of the
the
Rational
Rational Model
Model
Rational
Rational
decision
decision
making
making
All
All possible
possible outcomes
outcomes known
known
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BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E
© McGraw-Hill Australia 2001
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Time
Time constraints
constraints
Limited
Limited ability
ability to
to
understand
understand all
all factors
factors
Inadequate
Inadequate base
base
of
of information
information
Limited
Limited memory
memory of
of
decision-makers
decision-makers
Managers
Managers as
as
decision
decision makers
makers
Satisficing
Satisficing
‘Satisficing’
‘Satisficing’
decision
decision
making
making
Poor
Poor perception
perception of
of factors
factors
to
to be
be considered
considered
in
in decision
decision process
process
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BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E
© McGraw-Hill Australia 2001
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A snapshot of some key issues and
Aanalytical
snapshottools
of some key issues and
analytical tools
Environmental Analysis
(O & T)
Structure-ConductPerformance framework
Five Forces Model
Organizational Analysis (S & W)
VRIO
Strategic Coherence
Appraisal Matrix
Value Chain
Chain
Strategic Choices
Use of value chain for competitive
positioning (cost vs. differentiation)
Segmentation analysis
TWOS matrix
Strategic Choices under
uncertainty
Scenario Analysis
Real Options Analysis
Strategic (game theoretic) analysis
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Our Learning Goals:
Pushing Down Through Bloom’s Taxonomy
1. Knowledge: remember
remember
material;
material; know
know terms,
terms, facts,
facts,
procedures,
procedures, basic
basic concepts
concepts
2. Comprehension:
grasp
grasp meaning;
meaning; understand
understand
facts,
facts, interpret
interpret charts,
charts,
translate
translate verbal
verbal to
to math
math
estimate
estimate consequences
consequences
3. Application: use
use
material
material in
in new
new situations;
situations;
apply
apply concepts
concepts to
to real
real
situations,
situations, follow
follow aa procedure
procedure
4. Analysis: break
break material
material
into
into components
components &
& understand
understand
structure;
structure; recognize
recognize logical
logical
fallacies,
fallacies, distinguish
distinguish fact
fact and
and
inference,
inference, evaluate
evaluate relevancy
relevancy of
of
data
data
5. Synthesis: integrate
integrate parts
parts
to
to make
make aa new
new whole,
whole, integrate
integrate
learning
learning to
to solve
solve aa problem
problem
6. Evaluations: judge
judge logical
logical
consistency,
consistency, judge
judge whether
whether
conclusions
conclusions are
are supported
supported by
by
facts
facts
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Summary “Takeaways”
Providing PURPOSE is an important function
for the executive.
One important purpose is to CREATE VALUE.
Value creation can lead to SUSTAINABLE
COMPETITIVE ADVANTAGE.
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