Download Introduction to Business Strategy ch1

CHAPTER 1
Basic Concepts
of Strategic
Management
STRATEGIC MANAGEMENT & BUSINESS POLICY
Lecturer: Pakzad Saleh
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Basic Concepts of Strategic Management
Learning Outcomes
•Understand the benefits of strategic management,
•Explain how globalization and e-commerce influence strategic
management
•Understand the basic model of strategic management,
•Identify some triggering events that act as stimuli for strategic
change
•Understand strategic management decision making modes
•Use the strategic audit as a method of analysing corporate
functions and activities.
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Website on Business Strategy
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Economic Times
NY Times
Washington post
The Wallstreet journal
Latest news: 60% of enterprises believe AI
disrupt their business in 2-3 years.
• Disney Laying off 28,000 employees or
Shell 7,000 employees.
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Basic Concepts of Strategic Management
Globalization
Internationalization of markets and corporations
Global (worldwide) markets rather than national
markets
Electronic Commerce
Use of the Internet to conduct business
transactions
Basis for competition on a more strategic level rather
than traditional focus on product features and costs
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Basic Concepts of Strategic Management
Electronic Commerce -- Trends
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Forcing company transformation
Market access & branding changing –
disintermediation of traditional distribution
channels
Balance of power shift to consumer. E.g
Wego, Airbnb choose from alternatives.
Competition changing
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Basic Concepts of Strategic Management
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Basic Concepts of Strategic Management
Electronic Commerce -- Trends
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Pace\speed of business increasing
Internet purchasing beyond traditional
boundaries
Knowledge key asset – source of
competitive advantage. E.g. FB collecting
your data
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Basic Concepts of Strategic Management
Strategy
Corporate Level Strategies
Mergers & Acquisitions?
Strategic Alliances?
Portfolio Analysis?
Diversification?
Core Competencies?
?
Strategic Intent
Vision
Mission
Objectives
Values
Sustainable?
External
Analysis
SW
OT
Strategic
Choice
Strategy
Implementation
Competitive
Advantage
Internal
Analysis
Business Level Strategies
Cost Leadership/Differentiation?
Value Chain?
VRIO?
The Paradigm
Organisational Structure
Culture
Reward & Recognition
Business Processes
Organisational Change
Absorptive Capacity
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Basic Concepts of Strategic Management
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Basic Concepts of Strategic Management
What is Strategy?
Take a couple of minutes: can you .....either
• Have a go at defining ‘strategy’
Or
• Think of a strategy with which you are familiar
Or
• Identify the strategic issues faced by a company?
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Strategic Management Defined
Strategic Management Defined
Set of managerial decisions and actions
that determines the long-run performance
of a firm.
It includes environmental scanning,
strategy formulation, strategy
implementation, and evaluation and
control.
Management’s “game plan” to
•Please customers
•Position a company in its chosen market
•Compete successfully
•Achieve good business performance
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Strategic Management Defined
Strategic Management Defined
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Basic Concepts of Strategic Management
TESLA Motors: Case study (10 mins)
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Basic Concepts of Strategic Management
Q1: The best definition that suits with Tesla Motors’ strategy is from
Michael Porter that regards competitive strategy is about being
different which means deliberately choosing a different set of
activities to deliver a unique mix of value.
Q2: As for Tesla Motors’, they are the Market Leader by
introducing electric cars while the industry remarks it as impossible
to succeed. Other than that, the determination of the founder with
no experience in making cars had brought Tesla as the world’s
most important automotive company and the most loved vehicle in
America in less than a decade compared with other established
successful brand like Ford that have been founded 111 years ago.
This determination of the long run goals and objectives of an
enterprise and adoption of courses of action and the allocation of
resources for carrying out these goals.
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Strategic Management Defined
Strategic Management Defined
The business context
The environment
context
Personality
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Strategic Management Defined
We work in a increasingly difficult
environment
More
turbulent
environment
US!
More
demanding
customers
More
intense
competition
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Basic Concepts of Strategic Management
Adapting to Change
• the strategic-management process is
based on the belief that organizations
should continually:
• monitor internal and external events
and trends so that timely changes can
be made as needed.
• Can you think of an organization that
adapted to change?
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Basic Concepts of Strategic Management
Founded in 1997 by CEO Reed Hastings, Netflix started its life mailing DVDs
to customers. Now, with over 109 million subscribers worldwide, it’s hard to
imagine not watching video on demand. Back in 2001, Hastings had the vision
to stream movies over the internet direct to our screens at home. For 10 years
he experimented and got customers used to the idea of streaming rather than
playing physical DVDs.
In January, Kodak’s share price on the New York Stock Exchange more than
doubled. The rise came off the back of Kodak’s announcement that it is
launching its own cryptocurrency called KodakCoin. Aimed at photographers,
KodakCoin forms part of a wider blockchain platform committed to protecting
photographers and helping them control their image rights. Could Kodak prove
that by adopting a proactive approach to new technology, the ‘Kodak moment’
is on its way back once more?
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Basic Concepts of Strategic Management
4 Phases of Strategic Management
• Firms evolve through the following
phases of strategic management.
1. Basic financial planning
2. Forecast-based planning
3. Externally-oriented planning
4. Strategic management
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Basic Concepts of Strategic Management
Basic Concepts of Strategic
Management
1.
2.
3.
4.
Basic financial planning: initiate some
planning when they requested to set up their
budgets; considers activities for one year.
Forecast-based planning: consider projects
for more than a year. The time horizon is
usually 3-5 years.
Externally-oriented planning: conduct
strategic planning by top management and
they leave implementation to low level.
Strategic management: planning by forming
a team from all levels in the company.
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Basic Concepts of Strategic Management
Highly Rated Benefits
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Clearer sense of strategic vision
Sharper focus on strategic importance
Enables Measurement of Progress
Improved understanding of changing environment
Research has revealed that organizations that engage in
strategic management generally outperform those that do
not.
For example, studies of the impact of deregulation on the
U.S. railroad and trucking industries found that companies
that changed their structures as their environment changed
outperformed companies that did not.
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Basic Concepts of Strategic Management
Not Always a Formal Process
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A recent survey by McKinsey & Company of 800
executives found that formal strategic planning processes
improve overall satisfaction with strategy development to be
effective, however, strategic management need not always
be a formal process. It can begin with a few simple
questions:
Where is the organization now? (not where do we hope it is)
If no changes are made, where will the organization be in
1,2,5 or 10 years?
What specific actions should management undertake?
What are the risks and payoffs?
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Basic Concepts of Strategic Management
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Basic Concepts of Strategic Management
Basic Elements of the Strategic
Management Process
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Environmental Scanning Defined
Environmental
Scanning
Monitoring, evaluation, and disseminating
information from external and internal
environments –to key people in the firm
Can be done through e.g surveys,
questionnaires and focus groups
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Basic Concepts of Strategic Management
Environmental
Variables
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Environmental Scanning
SWOT Analysis
SWOT is an acronym used to describe the particular
strengths, weaknesses, opportunities, and
threats, that are strategic factors for a specific
company.
The external environment consists of variables (OT)
that are outside the organization and not typically
within the short run control of top management.
These are variables from the context within which
the corporation exists
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Environmental Scanning
SWOT Analysis
The internal environment of a corporation consists of
variable(SW) that are within the organization itself
and are not usually within the short run control of
top management.
These variables from the context in which work is
done. They include the corporation’s structure,
culture, and resources, key strengths from a set
of core competencies that the corporation can use
to gain competitive advantage
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Environmental Scanning
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Environmental Scanning
Class exercise : Create SWOT for KUST
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Strategy Formulation
Strategy Formulation
Formulation is the development of long-range plans for the
effective management of environmental opportunities
and threats, in light of corporate strengths and
weaknesses (SWOT).
It includes defining the corporate mission, specifying
achievable objectives, developing strategies, and setting
policy guidelines.
E.g. pay attention to what your competition is doing and make
adjustments to your strategic plan as necessary
throughout the process
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Strategy Formulation
Vision Statement
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Clear: No complex words; no awkward wording.
Concise: The fewer words the better; less than 25 if
possible.
Catchy: Snappy sounding without using slang or idioms.
Memorable: Easy to recall; easy to explain.
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Qaiwan Group: Our vision is to be distinguished as a center
of academic, technological and research excellence in Kurdistan
Region of Iraq (KRG), and to be recognized for its distinctive
excellence in education. It is an institution of choice for students and
prominent scholars, as well as a catalyst for sustainable socioeconomic development of Kurdistan and Iraq.
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Strategy Formulation
Mission Statement
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Purpose/reason for organization
Promotes shared expectations
Communicates public image
Who we are; what we do; what we
aspire to
The mission of the Komar University of Science and
Technology is to contribute to the advancement of
society in Science and technology and to prepare its
graduate to assume a leading role in this endeavor.
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Strategy Formulation
Objectives
Is a goal or something to aim for.
An example of objective is a list of
things to accomplish during a
meeting.
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Clear and obvious
Achievable
Measurable
Communicated to the
appropriate people
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Strategy Formulation
Business Model
refers to a company's plan for making a
profit.
4 Types of Business Model
• Direct sales
• Franchise
• Freemium (trail period)
• Subscription models
E.g. Next slide
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Strategy Formulation
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Evaluation and control
Evaluation and control
Strategic Evaluation operates at two levels
• Strategic level: Managers concerned with the
consistency of strategy with the environment. E.g. KUST
ministry new regulation
• Operational level: wherein the effort is direct at
assessing how well the organization is pursuing a given
strategy. E.g. VP of Komar.
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Organizational Adaptation
Organization “fit” with environment
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Theory of population: org. unable to adapt to
changing conditions.
Institution theory: org. can adapt to changes.
Strategic choice perspective: not only adapt to
changes but it can reshape its environment
(CSR).
Organizational learning theory: focuses on the
creation of knowledge and the use of that
knowledge within an organization
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Organizational Adaptation
Strategic flexibility
• Capability to identify major changes in
the external environment, quickly
commit.
• Demands firm to become a learning
organization
• E.g. the firm that is able to transform
itself radically and permanently. Zara
supply chain compared to H&M.
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Learning Organizations
An organization skilled at creating,
acquiring, and transferring
knowledge and at modifying its
behavior to reflect new knowledge
and insights
e.g. Google’s employees are given the flexibility to set
their schedules to work when it suits them, in a
way that maximizes their productivity and
creativity.
e.g. Sweden six hours a week work force.
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Basic Concepts of Strategic Management
Hierarchy of
Strategy
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Goals & Objectives
Corporate Goals/Objectives
–Profitability (net profit) (Sabre increasing
by year)
–Growth (in comparison with competition)
–Resource utilization ( Return on
investment ROI)
–Market leadership
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Basic Concepts of Strategic Management
3 Types of Strategy
–Corporate strategy
–Business strategy
–Functional strategy
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Basic Concepts of Strategic Management
Corporate Strategy
–Stability - focuses on its existing product and
market
–Growth – Ansoff’s Matrix
–Retrenchment (reduction)
E.g. a gas-station company acquiring a oil refinery.
Diversification – A corporate strategy in which a company
acquires or establishes a business other than that of its current
product. Or PepsiCo establishing Aquafina (related or unrelated)
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Basic Concepts of Strategic Management
Corporate Strategy
–Growth – Ansoff’s Matrix
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Excersise
Class exercise:
Apply Ansoff Matrix Analysis for Coca-Cola
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Excersise
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Basic Concepts of Strategic Management
Business Strategy
–Competitive strategies (Next slide)
–Cooperative strategies. e.g. a joint venture is the case of
Facebook and Skype in 2011 that sign a Strategic Alliance that
gave Facebook economic benefits
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Basic Concepts of Strategic Management
Business Strategy
–Competitive strategies (porters generic strategies)
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Basic Concepts of Strategic Management
Business Strategy
–Competitive strategies (porters generic strategies)
Apply the generic strategies to
any known organization.
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Basic Concepts of Strategic Management
Business Strategy
–Competitive strategies example
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Basic Concepts of Strategic Management
Functional Strategy
– Is a short-term plan for achieving one or more goals of a
business by one or more functional areas (it can be
departmental)
–Technological leadership e.g re-investing 40% of income
in R&D
–Technological followership - The follower firm can learn
from the experiences of the leader firm and can avoid the costs
and risks associated with technological leadership, thereby
helping to establish a low cost position. e.g Rono Chinese
phone company to compete in the market
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Strategic Decision Making
Strategic Decisions
–Rare - unusual and do not have any example or
model to follow.
–Consequential - implements a generous amount
of resources and requires a substantial amount of
dedication from people at all levels.
–Directive – Very precise and direct towards their goal
E.g. When pizza companies introduced 30-minute
delivery, they had to rethink their production
processes and invest in faster cooking methods1-54
Strategic Decision Making
Top managers tend to use one of four
modes of strategy formulation:
Mintzberg’s Modes
•Entrepreneurial mode: the strategy is made by powerful individual.
The focus on opportunities. Mark Zuckerberg
•Adaptive mode: using reactive solution rather than proactive.
•Planning mode: it uses reactive and proactive mode.
•Logical incrementalism: strategy is set based on a series of
incremental (small steps) commitment rather than through global
formulation of total strategies. This suitable when environment is
changing rapidly.
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Elements of Successful Strategy
Successful
Strategy
Effective Implementation
Long-term simple,
and agreed objectives
Profound understanding of
the competitive
environment
Objective
appraisal of
resources
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Multiple Choice Question
Which of the following is a definition of strategic management?
A.
B.
C.
D.
Strategic management is concerned with the annual
planning processes by which an organization
determines its annual targets and budget allocations.
Strategic management refers to those aspects of
management that are the responsibility of an
organization's most senior managers.
Strategic management refers to those activities and
processes through which an organization determines its
mission and/or objectives and the plans, policies and
actions to achieve them.
Strategic management refers to an approach to
business planning based on the objectives of the
various stakeholder groups affected by the
organization's activities
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Multiple Choice Question
Which of the following is a definition of strategic management?
A.
B.
C.
D.
Strategic management is concerned with the annual
planning processes by which an organization
determines its annual targets and budget allocations.
Strategic management refers to those aspects of
management that are the responsibility of an
organization's most senior managers.
Strategic management refers to those activities and
processes
through
which
an
organization
determines its mission and/or objectives and the
plans, policies and actions to achieve them.
Strategic management refers to an approach to
business planning based on the objectives of the
various stakeholder groups affected by the
organization's activities
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Question
What is difference between a companies
strategy and strategic management?
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Question
What is difference between strategy and strategic
management?
A company's strategy is its plan for victory in
competition with other companies.
Strategic management is a process for
formulating and implementing a strategy.
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References
De Wit, B., & Meyer, R. 2005. Strategy Synthesis: Resolving strategy
paradoxes to create competitive advantage: text and readings. London:
Thomson Learning.
Gragg, C. I. (1940.) Because Wisdom Can’t be Told. Harvard Business
School. Case 9 - 451-005.
Hill, C., & Jones, G. (1998.) Strategic Management Theory, An Integrated
Approach. Boston: Houghton Mifflin Company.
Mintzberg, H., Ahlstrand, B. W., & Lampel, J. (2009.) Strategy Safari : The
complete guide through the wilds of strategic management. Harlow:
Financial Times Prentice Hall.
Oxford Dictionary of Business (1996)
Porter, M. E. (1996.) What is strategy? Harvard Business Review, 74 (6): 6178.
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