University of North-West Graduate School of Business and Government Leadership

Strategic Management for MBA: ADM 807

Table of Contents • • •

What is Strategy Hierarchy of strategy

– Corporate level strategies – Business level strategies – Functional level strategies

Corporate Governance, ethics and social responsibility

– Individual Ethics in organisations – Social responsibility and ethics – Organisational approaches to social responsibility – Managing social responsibility •

Strategic Planning Process

– Industry Analysis – Environmental Scanning – Strategy Formulation – Strategy Implementation – Evaluation and Control •

The Strategic Audit Process

– The 8 stages of strategic Audit 2

What is Strategy

Strategic Management for MBA: ADM 807

What is strategy

Defined, strategy is: The execution of a

set of choices

based on customer Needs, which identifies the essential

positioning, Competitive advantages

, and

configuration of Activities

necessary to create value superior To competition and generate superior returns 4

Operational Effectiveness

Achievement of the best practices

through: • Using state of the art technology • Eliminate waste • Continuous organisational improvement • Providing superior service • Increased productivity 5

The Model of Strategy • Unique competitive position • Activities tailored to strategy • Making clear tradeoffs or choices • Creating a strategic fit across activities • A sustainability of a system not parts • Continuity • OE as a given 6

Tradeoffs • The need to choose is reflected by incompatibilities between positions    More of “A” necessitates less of “B” Overlap between competitive positions is limited Without tradeoffs, only OE is attained • Seek tradeoffs and accentuate them • Be able to choose what not to do 7

Hierarchy of Strategy

Strategic Management for MBA: ADM 807

Hierarchy of Strategy

Strategies Tools of Analysis Grand Strategies • Growth • Stability • Retrenchment

Corporate

• Industry Analysis • SWOT Analysis Generic Strategies • Low cost • Differentiation • Focus Functional Strategies • Marketing • Product • Financial etc

Business Functional

• SBU Analysis (BCG Matrix) • Functional Analysis 9

Hierarchy of Strategy • Corporate Strategy – Overall business direction (e.g. Diversify into a different industry) • Business Strategy – Business Unit Level Decision making (e.g. Increase market share) • Functional Strategy – Functional areas level (e.g. Increase sales level) 10

Corporate Level Business Decisions Michael Porter’s 5 Forces of Competitive Analysis

Potential Entrants Threat of New Entrants Suppliers Bargaining Power of Suppliers Industry Competitors Rivalry among Existing Firms Threat of Substitute Products or Services Substitutes Bargaining Power of Buyers Buyers

11

Corporate Level Business Strategies S • Structure • Culture • Resources • Agency W • Structure • Culture • Resources • Agency O • Competitors • Customers • Unions • Suppliers T • Political factors • Economic Factors • Socio-Cultural Issues • Technology Factors 12

Business Level Strategic Decisions High Stars Question Marks Low High Cash Cows Dogs Relative Market Share Low 13

Business Level Strategic Decisions

Strategic Advantage

Uniqueness Low Cost Position Industrywide

Differentiation Overall Cost Leadership

Particular Segment only

Focus

14

Functional Strategic Level Decisions Corporation "A" CEO Marketing GM e.g STP Mix Life Cycle Finanace CFO HR GM R&D GM IS GM • Capital budgeting • Leverage • Job/Skill Match • Job analysis • Process R&D • Product R&D • Tech competence • Manage info flow to manage:  Early warning  Automation  MIS 15

Practical Example • • •

Organisational Vision and objectives An enabling organisational Structure Project Rainbow:

•

Interrelation between projects

•

Projects’ support of objectives Strategic

•

Understand the Budget Requirements

•

CAPEX

•

OPEX

• • •

MTEF Expenditure Commitments

• •

Clarify levels of ACCOUNTABILITY

•

Who’s responsible for which project(s) Identify needed administrative capabilities, Policies and procedures:

•

Standard Project Charters;

•

Reporting standards;

•

Project Initiation charters;

•

Develop Analysis capabilities Tactical

• • •

Design a project integration matrix (IM) Develop a tight compliance culture with meeting IM milestones Identify an executive resource to ensure compliance at all times

•

Develop an execution strategy to meet project IM milestones

•

Standing Integration meetings;

•

Standard reporting Operational

• •

Understand the Postmasters’ brief Map Postmasters’ brief to strategic objectives

•

Map individual projects to Postmasters’ brief

16

Corporate Governance, ethics and Social Responsibility

Strategic Management for MBA: ADM 807

Ethics • Business-Society interactive relationship – Forces in the societal or general environment affect business decisions through groups in the task environment.

– There is therefore need for business to be constantly aware of variables and forces in both the task and societal environment.

– Lack of SR and ethical business dealing can cause conflict.

18

Ethics Family Influence Situational Factors Values and Morals Experience Peer influence

Individual ethics

19

SR and Ethics • Carroll’s responsibilities of business – Economic : ROI – Legal : Abide by all laws and govt. regulations – Social : Discretionary – Ethical : Good corporate citizenship as expected by society 20

Approached to SR Lowest

Degree of Social Responsibility

Social Obligation Social Response Social Contribution Highest 21

Industry Analysis

Strategic Management for MBA: ADM 807

The Strategic Management Process

Environmental Scanning Strategy Formulation Strategy Implementation Evaluation and Control External

• Societal Environment •Task Environmental

Internal

• Structure • Culture • Resources Mission Objectives Strategies Policies Programs Budgets Procedures Performance 23

Industry Analysis – Porter’s 5 Forces

Potential Entrants Threat of New Entrants Suppliers Bargaining Power of Suppliers Industry Competitors Rivalry among Existing Firms Threat of Substitute Products or Services Substitutes Bargaining Power of Buyers Buyers

24

Threat of Potential Entrants

Potential Entrants Industry Competitors Suppliers Buyers Substitutes

This force is influenced by barriers to entry: • Economies of scale • Product differentiation • Capital requirements • Switching Costs • Access to distribution channels • Cost disadvantages independent of size • Government policy 25

Rivalry among existing firms

Potential Entrants Industry Competitors Suppliers Buyers Substitutes

This force is influenced by: • Number of competitors • Rate of industry growth • Product or service characteristics • Amount of fixed costs • Capacity • Height of exit barriers • Diversity of rivals 26

Threat of substitute products or services

Potential Entrants Industry Competitors Suppliers Buyers Substitutes Substitute products appear to be different but can satisfy potential returns of an industry by placing a ceiling on the prices, firms in the industry can profitably charge. To the extent that switching costs are low, substitutes may have a strong effect on an industry.

27

Bargaining power of buyers

Potential Entrants Industry Competitors Suppliers Buyers Substitutes

This force is influenced by: • Large purchases • Backward integration – Producing the product itself • More suppliers in the industry • Low costs for changing suppliers • A product constituting a large % of consignment, encouraging shopping for a lower price • Sensitivity to cost and service differences 28

Bargaining power of suppliers

Potential Entrants Industry Competitors Suppliers Buyers Substitutes

This force is influenced by: • Few suppliers in an industry • Less # of substitutes • Forward integration by suppliers • Purchases being a small portion of a supplier group’s goods 29

Strategic Planning Process

Strategic Management for MBA: ADM 807

Environmental Scanning: External and Internal Environmental Scan

Strategic Management for MBA: ADM 807

The Strategic Management Process

Environmental Scanning Strategy Formulation Strategy Implementation Evaluation and Control External

• Societal Environment •Task Environmental

Internal

• Structure • Culture • Resources Mission Objectives Strategies Policies Programs Budgets Procedures Performance 32

2 Categories of the external environment • Societal environment – General environmental factors like: • Socio-cultural, economic, political/legal and technological forces • Task environment – Groups affecting the corporation and whom the corporation affects • Government, shareholders, suppliers, customers, creditors, competitors, unions and community.

33

Internal Scanning and analysis: RBV of the firm • Resource Based View (RBV) of the firm Emphasizes the core competence as a unifying factor among a firm’s businesses.

– Identifies core competency as a value creation tool – Uses the firm’s resources [(In)tangible and capabilities] as primary determinant of its strength and weaknesses 34

RBV Approach to strategy analysis • 5 activities are involved: – Identify and classify resources in terms of strengths and weaknesses – Combine different core competencies into a unified whole – Appraise resources based on their appropriability (Ability to harvest profits resulting from the use of resources) – Select the best strategy – Upgrade weaknesses to fill resource gaps 35

Characteristics of resources, important in sustaining competitive advantage • Durability: At what rate does the resource depreciate or become obsolete?

• Transparency: How easy is it for other firms to understand the coherence of your resources?

• Transferability : How easy can your resources be transferred to competitors?

• Replicability : How easy is it for competitors to duplicate your success?

36

Functional Analysis: SCR Analysis • Areas of Focus are: – Structure • Divisional, Simple or conglomerate – Culture • Gives a sense of identity and fulfills the following: – Gives a sense of identity – Encourages commitment – Adds stability – Provides a frame of reference and guide for appropriate behaviour 37

The Strategic Management Process

Environmental Scanning Strategy Formulation Strategy Implementation Evaluation and Control External

• Societal Environment •Task Environmental

Internal

• Structure • Culture • Resources Mission Objectives Strategies Policies Programs Budgets Procedures Performance 38

SWOT Analysis – Bridge between Enviro Scan and Strategy Formulation • Analysis of the corporation’s Strength, Weaknesses, Opportunities and Threats • It’s aimed at identifying the corporation’s distinctive competence • Internal Factor Analysis, External Factor Analysis 39

Review of the mission and objectives • Mission – A broad statement indicating why the business exists • Goals – Broad open-ended statements of where the business intends to be in the future • Objectives – Measurable, precise and quantifiable statements indicating where the business intends to be in a specified point in time 40

Corporate Strategies There are 3 grand strategies that can be taken @ a corporate level, Growth, Stability and Retrenchment Strategies A S W R, t G G H R, c R, b G S G M Industry Attractiveness L 41

Growth strategies • • • • Concentration Vertical Integration forward integration) – Growth through taking over functions previously performed by others (Backward or Horizontal Integration – Growing in other geographic locations or increasing product ranges • • Diversification Concentric diversification – Diversifying into related industries Conglomerate diversification – Diversifying into unrelated industries 42

Stability Strategies • Pause or proceed with caution – No significant change in corporate strategy – If industry is facing an uncertain future, a company may pause its growth initiatives to consolidate its resources – A company my proceed with caution and not make sudden moves or take unjustified moves in an industry even if it has a strong competitive advantage • No change or profit strategy – A company may have no obvious opportunity/threat – When there are few aggressive new competitors – A no change strategy is appropriate when there’s no significant change in the company’s situation – A company in a matured industry with a declining profit and sales level may follow a profit strategy, which helps it to get through the financial difficulty period by cutting expenses in the short run 43

Retrenchment Strategies • Turnaround – Contract – Consolidate • Captive company – Captive company – Sell out • Bankruptcy – Liquidation – Bankruptcy 44

Business/Competitive Strategy • Focuses on improving the competitive position of a firm’s products/services • Addresses the HOW and not the WHAT • Following the corporate strategy formulation, decisions will be taken pertaining to: – Basis to competition, cost reduction/differentiation – Scope of competing, i.e Niche or Industry-wide 45

Business Level Strategic Decisions

Strategic Advantage

Uniqueness Low Cost Position Industrywide

Differentiation Overall Cost Leadership

Particular Segment only

Focus

46

3 Generic Strategies • • •

Low cost

– Ability operate more efficiently than the competition

Differentiation

– Provide a superior service

Focus

– Providing superior service to a particular target only • Low cost and differentiation are industry-wide strategies. Focus is for a segment 47

Functional Strategic Level Decisions Corporation "A" CEO Marketing GM Finanace CFO HR GM R&D GM IS GM • Market Dev Strategy • Mkt penetration • Dev new mkts for current goods • Product dev Strategy • Push/pull strategy • Pricing • Capital budgeting • Leverage • Job/Skill Match • Job analysis • Process R&D • Product R&D • Tech competence • Manage info flow to manage:  Early warning  Automation  MIS 48

Example

A REAL LIFE EXAMPLE OF DEVELOPING A FUNCTIONAL STRATEGY FOR THE INFORMATION TECHNOLOGY OF THE S.A POST OFFICE

49

Strategic Management Process: Strategy Implementation

Strategic Management for MBA: ADM 807

The Strategic Management Process

Environmental Scanning Strategy Formulation Strategy Implementation Evaluation and Control External

• Societal Environment •Task Environmental

Internal

• Structure • Culture • Resources Mission Objectives Strategies Policies Programs Budgets Procedures Performance 51

Implementation • Who implements strategy – Everyone implements, ‘though at different levels – To foot dragging, involve everyone • What must be done – Develop programs, budgets and procedures • Strategy must be action oriented and standardised – Strive for synergy • Bettered outcomes from a combination of functions than would be individually 52

How strategy is implemented • The following are primary considerations: – Organising: Structure – Structure follows strategy – Organizational life cycle • 4 Stages – Birth – Growth – Maturity – Decline 53

Product Life Cycle High

Introduction Growth Stages Maturity Decline

Low Time 54

The Strategic Management Process

Environmental Scanning Strategy Formulation Strategy Implementation Evaluation and Control External

• Societal Environment •Task Environmental

Internal

• Structure • Culture • Resources Mission Objectives Strategies Policies Programs Budgets Procedures Performance 55

Evaluation and Control Process

5. Take Corrective Action 1. Determine what To measure 2. Establish Performance Standards 3. Measure Actual Performance 4. Match Performance to standards Matches No Match

STOP 56

The Strategic Audit

Strategic Management for MBA: ADM 807

8 Stages of the Strategic Audit 1.

2.

3.

4.

5.

6.

7.

8.

• • Evaluate the current situation Financial Analysis The strategic posture Evaluate the strategic Managers Conduct an external environmental scan Conduct an internal environmental scan Perform a SWOT analysis Develop alternatives and recommend the best Outline the implementation of the chosen alternative Define the evaluation and control process for checking the success of your chosen alternative 58