Transcript Business Policy - Dublin City University | DCU

Business Policy
Strategy Formulation
Topic 1: The Concept of Strategy and the
Strategic Management Process
Lecture Plan
• What is a strategy?
• The strategic management process
• Why strategic management is an ongoing
process
• Who performs the tasks of SM?
• Benefits of a strategic approach
What is a strategy?
• ‘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 these
goals’’
» Chandler
• ‘a commitment to undertake one set of actions
rather than another’
» Oster
What is a Strategy? (2)
• ‘...the “game plan” management has for
positioning the company... entails choice
among alternatives and signals
organisational commitment to specific
markets, competitive approaches, and ways
of operating.’
» Thomson and Strickland
Corporate
Business
The strategy
pyramid
Influence
Function
Operating
•Uniting the strategy-making effort through
vertical and horizontal linkages.
•Co-ordination through mutually reinforcing
vision, objectives & strategies.
Different Levels of Strategy
• Corporate - what business?
• Business - how to compete in each business
• Functional - in support of business level
The Strategic Management Process
Analyze
Environment
Identify
current
mission,
objectives
& strategies
Identify
opps / threats
SWOT ANALYSIS
Analyze
Resources
Identify
strengths &
weaknesses
Formulate
Strategies
Implement
Strategies
Evaluate
Results
‘Management’, Robbins, S. & Coultar, M. 1996p. 259
Strategy Making - Process or Event?
• Strategy making is an ongoing process
• Boundaries between tasks:conceptual not
real
• Managers have many other responsibilities
• Crafting/ implementing happens erratically
Intended and Adaptive Strategy
‘strategy is a combination of planned actions
and on-the-spot adaptive reactions to freshly
developing industry and competitive events.’
Respond to external/internal environment
Emergent Strategy
Who Performs the five tasks?
• CEO and other managers
• Strategic planners
• Board of directors
The Three Strategy Making Tasks
• Develop a strategic vision/ business mission
• Set objectives
• Craft a strategy
‘Chesire Puss’ she (Alice) began ...
‘Would you please tell me which way I
ought to go from here’
‘That depends on where you want to get
to,’ said the cat.
Lewis Carroll
‘If you don’t know where you’re going,
any old road will take you there’.
Anonymous
Mission
Defines the current boundaries
Defines the business position
-’Who are we?’
- ‘What do we do?’
Present
What Business are you in: Coca
Cola
– soft drinks?
Competition is Pepsi,
Finches
– beverages?
Competition is tea, coffee,
softdrinks
– thirst -quenching?
Competition is water & all
liquids!
Broad / Narrow Business Definition
Broad
Beverages
Children’s entertainment
Furniture
Travel
Narrow
Fizzy drinks
Toys for toddlers
Waterbeds
River cruises in Egypt
Objectives
•Strategic vs. Financial?
•Long range vs. short range?
•Challenging but achievable
•Measurable
Strategic vs. financial objectives?
• Strategic
– focus is on competitors
• eg. becoming the top company in the industry
• Financial
– focus is on financial performance
• eg. acceptable profit margin/ ROI
• Both are neccessary
– company must survive in both short and
long term
Long vs. Short term?
• Long term forces
– early action
– long term implications
considered
• Short term encourages
– speedy progress
Challenging but Achievable
• objectives must be
realistic
• but should stretch
• funds/ resources must
be available to execute
the strategy
Measurable
• Objectives must be
measureable
– eg. growth in market share
of 5%
• Deadlines must be set
– eg. by December next
‘You cannot manage what
you cannot measure’
Objectives needed at all levels
• Parts supporting the whole
• Top-down objective-setting
- cohesion
- leadership
Approaches to performing the
strategy making tasks
–
–
–
–
Master strategist: manager is chief architect
Delegate to others
Collaborative approach
Champion approach
Factors that
shape strategy
External
Society
political
regulatory
Industry
Opportunity
Attractive- threat
ness
Company’s strategic situation
Strengths
weakness
Internal
Manager
values /
ambitions
Culture
Evaluation
Choice
Craft a
Strategy
Societal, Political, Regulatory
Conditions
• Limit the strategic actions that a company
can or should take
• May cause company to change strategy
– anti-smoking lobby (direct mkg/advertising)
– lead-free petrol (eg Pura)
– recycling
Industry Attractiveness
• Strategy must be matched to industry and
competitive conditions eg.
– technology shift
– change in cost structure of industry
Market Opportunities and Threats
• Be open to opportunities
• Aim at capturing best growth opportunities
• Defend against threats to well-being and
future performance
Organisational Strengths and
Weaknesses
• Strategy must be well-matched to the
company’s strengths
– strategy should be grounded in what company
is good at doing
– perilous to depend on what it’s not good at
Manager’s Values, Beliefs and
Ambitions
• Management play a pivotal role
• Strong leadership builds commitment
• Management communication - ‘buy-in’
Strategy formulation:
deciding what to do
• what you might do:
opportunity
• what you can do:
resources
• what you’d like to do:
values/
ambitions
• what you ought to do:
ethics
Tests for a good strategy
• Goodness of fit test
– matches well the company’s situation
• internal
• external
• Competitive advantage test
– leads to sustainable competitive advantage
• Performance test
– leads to superior performance
• profitability
• long term business/ market position strength
Benefits of a Strategic Approach
•Direction
•Adaptable / in-tune with environment
•Basis for budget/resource allocation
•Unifies decisions across organisation
•Encourages pro-active management
•Requires strategic thinking rather than gutfeel/drift