Transcript Chapter 1 Strategic Management

Strategic Management
Chapter 1
Objectives
On completion of this chapter, you should be able
to:
• Recognize the need for more than one view of
strategic management
• Understand the importance of strategy at
different levels in an organization
• Analyse and explain situations using the many
tools of strategic management
• Be aware of processes involved in developing and
implementing strategy
Framework of Strategic Management
• Stems from the concept of developing and implementing
strategy which means making decisions about the future
• Answering important questions such as:
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What business we are in? What business we should be in?
What are our basic directions for the future?
What is our culture and leadership style?
What is our attitude to strategic change? What should it be?
How do we compete successfully? What is our sustainable
competitive advantage?
– How can we innovate?
– Who are our customers?
– What value do we add? Where? Why? How?
Roles
• Top management has the perspective needed
to understand the broad implications of such
decisions and the power to authorize the
necessary resource allocations.
• Business managers plays a crucial role in
exploring, developing and implementing the
suitable business strategy for an organization.
Quote:
• Business week – Pearce & Robinson, 2003 – top manager of
Volvo Gm Heavy Truck Corporation, Karl Erling Trogen,
president, wanted to push the company closer to the
customer by overarching operations with service and
customer relations empowering the work force closest to
the customer with greater knowledge and authority. This
called for a major commitment to the parts and service end
of the business where customer relations were first priority.
Trogen’s philosophy was to empower the work force that
more operating questions were handled on the line where
workers worked directly with customers. He believed that
the corporate headquarters should be more focused on
strategic issues, such as engineering, production, quality
and marketing. This in essence is strategic management.
What is Strategy?
• No universal definition.
• Andrews (1971) – “Strategy is the pattern of major
objectives or goals and essential policies or plans for
achieving those goals, stated in such a way as to define
what business the company is in or is to be in and the kind
of company is it or is to be”.
• Haberberg and Rieple 2001 – “Strategy is the set of actions
through which an organization, by accident or design,
develops resources and uses them to deliver services and
products in a way which users find valuable, while meeting
the financial and other objectives and constraints imposed
by key stakeholders.”
Core areas of Strategy
• Strategic Analysis
– Environment
– Resources
– Vision, mission & objectives
• Strategic Development
– Options
– Rational selection
– Finding strategic route
• Strategic Implementation
– Resource Allocation
– Strategic planning & control
– People issues & change
• Strategy covers the range and depth of the
organisation’s activities as it directs the
changing and evolving relationships of the
organization with its environment.
• An effective strategy is one that creates
competitive advantages for the business that
are sustainable over time.
Sustainable competitive advantages
(SCA)
• Resources possessed by an organization that is
innovative, unique, durable and not easily imitable.
• Comes by striving to exploit the relevant resources of
the individual organization when compared with its
competitors.
– Relevance – means the identification of resources that are
better than those of competitors, persuasive to the
customer and available from the range of strengths
contained inside the organization. May include the way an
organization combines its activities and resource to add
value to the products/ services offered to customers.
Strategies adopted to establish SCA:
– Cost reduction – low cost production/service operations –
enables to offer products/services at lower price than
competitors.
– Differentiation – unique features of product/services that
appeal to part or whole market
– Niche marketing – focus to meet specified needs of customers
– Being truly competitive – high innovative levels of performance,
quality, services or technology that cannot be easily matched by
competitors.
– Culture and style of organization – the way organization leads,
trains and supports its staff
– Synergy – combination of parts of a business to create an end
result worth more that the individual parts alone.
• No single route to achieving SCA but 3
possible test to check to see if advantages are
achieved. Advantages:
– Sufficiently significant to make a difference i.e
hold REAL benefits to the organization and the
customer.
– Sustainable against environmental change and
competitor attack i.e. not easily emulated.
– Recognizable and linked to customer benefits i.e.
something consumers can relate to.
• Organisation’s strategy – concerned with
matching the external environment to the
organisation’s internal environment – its
resources, skills and activities – in order to add
value to its products/service and enable it to
beat the competition.
Pearce & Robinson, 2003
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Essence of strategic management comprises 9 critical tasks:
Formulate the company’s mission, including broad statements about its purpose,
philosophy and goals.
Conduct and analysis that reflects the company’s internal conditions and
capabilities.
Assess the company’s external environment, including both the competitive and
the general contextual factors.
Analyse the company’s options by matching its resources with the external
environment.
Identify the most desirable options by evaluating each option in light of the
company’s mission.
Select a set of long-term objectives and grand strategies that will achieve the most
desirable options.
Develop annual objectives and short-term strategies that are compatible with the
selected set of long-term objectives and grand strategies.
Implement the strategic choices by means of budgeted resource allocations in
which the matching of tasks, people structures, technologies and reward systems
is emphasized.
Evaluate the success of the strategic process as an input for future decisionmaking.
Strategic Management
• Process of specifying an organisation’s objectives,
developing policies and plans to achieve these
objectives and allocating resources so as to
implement the plans.
• Recognizes that formulation and implementation
of strategies are related parts of the same
process and that operational manages should be
involved in the whole process.
• Highest level of managerial activity provides
overall direction to the whole enterprise.
Corporate Strategy
• To put the organization into a position to carry
out its mission effectively and efficiently.
• Good corporate strategy should integrate an
organisation’s goals, policies and action
sequences (tactics) into a cohesive whole and
must be based on business realities.
Historical Perspective
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1950s and 1960s – strategy was seen largely as a deliberate process of analysis and
long-term planning, controlled by the CEO.
Alfred Chandler (1962) and Igor Ansoff (1965)
“As organizations and their operating environment became more comples, strategy
development became part of the organisation’s corporate planning function.”
1983 – GE dismantled planning department of over 200 highly paid experts. John
F Welch, GE Chairman, reported that planners were ‘too concerned with financial
and operating details instead of competitive positions and the creation of future
markets and too divorced from the day-to-day reality of line managers’.
1970s and 1980s, Boston Consulting Group, advocated strategy as positioning the
organization with the implementation of their very own BCG matrix - organizations
can analyse their position in relation to their competitors and their industry, select
which strategies would work best for their circumstances.
1980s – Japanese were able to offer both lower cost and superior quality than
their rivals – UK and US turned their attention to the internal resources of the
organization: quality, continuous improvement and operational effectiveness.
1990 – search for competitive advantage fuelled by rapid change – adaptable and
innovative and able to spearhead change, not merely to respond to change.
Emphasis on learning organization, core competencies, innovation, making
alliances and partnerships and on global issues.
Process, Content, Context
• Context – environment within which the strategy
operates and is developed.
• Content – main actions of the proposed strategy.
• Process – linking of actions to interact with each other
as the strategy unfolds against what may be a changing
environment.
• Context and content – are reasonable clear. It is the
way in which strategy is developed and enacted
(process) that usually causes most problems. Process
requires investigation and are vague and impractical
because they involve people and rapidly changing
environments.
Perspective Approach
• Core areas are linked together sequentially thus
possible to use the analysis to develop a strategy which
is then implemented.
• One whose objective has been defined in advance and
whose main elements have been developed before the
strategy commences.
• Strategy is formulated and chosen by thorough and
detailed analysis of the external environment and
internal capabilities using various tools and techniques.
• Choice of strategy will depend on the organisation’s
situation and circumstances in relation to its industry.
Emergent Process
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It is impossible to plan strategy in a turbulent environment –
conditions change before any plan can be implemented.
Emergent approach have taken the view that corporate strategy
emerges, adapting to human needs and continues to develop over
time.
Emergent strategy is one whose final objective unclear and whose
elements are developed during the course of its life, as the strategy
proceeds.
Enables organistion to be flexible and responsive to new
opportunities. Trial and error can be expensive – with resources
being used in an unfocused way – and strategies may be slow to
emerge.
Emergent approaches may mean that the organization has no clear
direction and no sound basis for decision-making.
Combined Approach
Different approaches may be suitable at
different times, depending on the context or
situation and an organization may pursue a
combination of approaches.
Developing Models of Strategy
• Analysis of the environment – examining
external environment – PESTLE
• Analysis of resources – exploring internal
environment
• Identification of vision, mission and objectives
– developing and reviewing the strategic
direction and more specific objectives
Strategy Development and
Implementation
• Perspective Approach
• Options – rational selection from the options according to identified
criteria. Choice is subject to 2 further considerations:
• Finding the strategic route forward – taking into account new and
emerging information to see how it might impact on the choice,
with some adjustment being made if necessary.
• Considering strategy, structure and style – taking into account the
way the organization is managed and structured and its style of
operation.
• These factors may need to be considered before a final decision is
made on the strategy to pursue. Essential to reconsider the impact
of these choice on the basic mission and objectives of the
organization. Once chosen, it is then implemented.
Emergent Approach
• Takes more experimental view of strategic
choice and its implementation
• Seeks to learn by trial, experimentation and
discussion as strategies are developed.
• No single view of a process that emerges
within an organization as each one will be
different.
Levels of Strategy
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Corporate strategy
Concerned with the overall purpose and scope of business to meet stakeholder expectations
Heavily influenced by investors in the business and acts to guide strategic decision-making
throughout the business.
Often stated explicitly in mission statement
Decisions tend to be more value oriented, more conceptual and less concrete than decisions at the
business or operational level.
Decisions are often characterized by greater risk, cost and profit potential causing a greater need
for flexibility and longer time horizons.
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Business unit Level
Concerned with how a business competes successfully in a particular market.
Concerns strategic decisions about choice of products, meeting needs of customers, gaining
advantage over competitors, exploiting or creating new opportunities etc.
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Operational level
Divided into operational areas – marketing, HR etc
Constitutes resources, processes and skills that will deliver the organisation’s strategy and there
must be a close integration between corporate level strategy and decisions taken at operational
levels.
Aligned with corporate level strategy
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Your Role in Strategic Management
• Strategy making – no longer the preserve of senior managers in their ivory
towers.
• Strategic management is increasingly part of the role and responsibility of
managers involved in the day-to-day running of the business.
• Managers involved in strategy formulation, not just implementing topdown decisions, are likely to be motivated and committed to
implementing changes that they have been involved in creating but there
are other important advantages:
– An organization has access to much broader sources of creativity and ideas
– Likely to be more diversity throughout the organization
– Manager and employees may have a wider range of cultural and educational
backgrounds and their assumptions and perspectives about the future are
likely to vary widely – makes strategic management to be richer.
What makes a ‘Good Strategy’?
Definition – ‘one that delivers the purpose set out for the strategy in the beginning.
Two areas tested:
• Application-related – related to the real world of the organization and its activities
• Academic rigour – related to originality, logical thought and scientific method.
Tests of Good Strategy
• Application-related
– Value-added
– Consistency
– Competitive advantage
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Academic rigour
– 5 tests
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Originality
Purpose
Flexibility
Logical consistency
Risk and resources