Transcript [Company Name] - Thammasat University

Bourgeois, Duhaime,
& Stimpert
Chapter 1
Introduction: A Model of
Strategic Management
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Chapter Objectives




Describe the dynamic characteristics of the business
environments in which general managers must
formulate and implement strategies.
Define the concept of strategy.
Describe how the study of strategic management is
unique and what makes strategy and strategic
management “strategic.”
Define and illustrate the concept of mental models.
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Chapter Objectives


(cont.)
Describe how managerial thinking influences
strategic decisionmaking and firm performance
outcomes.
Provide a model of strategic management that will
serve as an organizing framework for this book.
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Competitive Landscape
of the 1990s

Rapid Rate of Change
 Consumer demographics
 Tastes
and preferences
 Nature of products and services
 Technologies
 “High-velocity environments,” such as PCs.
• Managers must react quickly to changes in industry
environments.
– IBM and Sears examples of companies who did not
react fast enough.
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Competitive Landscape
of the 1990s (cont.)

Traditional boundaries around markets, nations, and
companies are being redrawn.
 Deregulation
in many markets causes profound
changes in these industries.
 Nearly all U.S. firms now realize that they compete
in global markets against many foreign
competitors.
 Companies are being re-engineered.
• Outsourcing becoming more popular.
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Competitive Landscape
of the 1990s (cont.)

Continued fragmentation of societies.
 Advertising
on network TV may not reach
majority of population -- cable TV has drawn
customers away from the networks.

Companies must now be very responsive to
institutional investors.
 Mutual
funds and pension/retirement funds have
huge investments in the stock of today’s
companies.
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Competitive Landscape
of the 1990s (cont.)
• Results in growing shift toward greater
concentration of corporate ownership and how
managers respond to short-term and long-term
priorities.
• Institutional investors have begun to demand
consistently high levels of performance from
companies.
See
Exhibit
1.1
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Competitive Landscape
of the 1990s (cont.)

Products and services are increasingly knowledgeintensive.
 Importance
of raw materials and labor has become
almost trivial in most manufactured products.
 Shift towards more costs allocated to technological
knowledge embedded in developing these products,
as well as the highly specialized equipment that is
required to fabricate the finished product.
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Competitive Landscape
of the 1990s (cont.)

Shift in relative importance of “fixed” versus “human”
capital.
 Growing
importance of human capital.
• Much more important role for human resource in
recruitment, training, motivation, and retention of
human capital.

Consequences and implications
 New
challenges which complicate strategic
management.
• Managers must anticipate and respond quickly to
industry changes.
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The Field of Strategy

How managers formulate and implement strategies
that lead to sustained competitive advantage.
 The
reason why some firms enjoy higher levels of
performance than their rivals.

Level of analysis of strategic management -- see
Exhibit 1.2 on following slide.
 Task
of general managers is knowledge-intensive
job in which they use information gleaned from
experience and other sources to make key -strategic -- decisions.
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Exhibit 1.2: Strategy’s
Level of Analysis Is Unique
Field of Study







Macroeconomics
Microeconomics
Strategy
Finance
Marketing
Organizational behavior
Operations management
Level of Analysis







The economy
Industries & markets
Firms & businesses
Investment projects
Products & services
Individuals
Plants
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Strategy: A Pattern in a
Stream of Decisions

Must understand managerial decision making and
how managers’ decisions affect the performance of
firms and businesses.
 Strategies
emerge over time as decisions
accumulate to form coherent recognizable patterns
of action.
• Different from conventional “grand plan” view.
– Strategies emerge after careful analyses of competitive
environments and organizational capabilities.
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Strategy: A Pattern in a
Stream of Decisions (cont.)

“Unrealized strategies” and the “emergent” nature of
business strategies.
 Many
intended plans do not get implemented -they become “unrealized strategies.”
• Plans are simply poorly conceived or inappropriate.
• Problems will arise that prevent implementation.
• Often, the task of dealing with day-to-day issues and
crises prevents managers from implementing their
plans.
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Strategy: A Pattern in a
Stream of Decisions (cont.)
 Second,
one must acknowledge that many
strategies emerge without ever being part of a
formal plan.
• New issues arise frequently and quite unexpectedly.
– Competitor lowers prices.
– Rival’s new marketing strategy negatively impact your
company’s sales.
– New products are introduced by other firms.
• New strategies emerge as patterns develop in
streams of decision making.
See Exhibit
1.3
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Exhibit 1.3: Strategy
Formulation as a Product of
Intended & Emergent Processes
Intended
Strategy:
"The Plan"
Deliberate
Strategy
Unrealized
Strategy
Realized
Strategy
Emergent
Strategy
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Strategy: A Pattern in a
Stream of Decisions (cont.)

Some illustrations
 Honda
entering U.S. motorcycle market in 1960s and
70s.
• Honda admitted that they “…had no strategy other
than the idea of seeing if we could sell something in the
United States.”
 General
Mills’ cereal business (see Exhibit 1.4 (A)
and (B) on the following slides).
• Announced strategy of maintaining premium pricing
with coupons.
– Pursued pricing strategy, but only 2% of coupons were
redeemed by consumers.
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Exhibit 1.4 (A): Strategy
Formulation Activities at
General Mills’ Cereal Business
Intended
Strategy:
"The Plan"
+
Maintain
premium
prices
Deliberate
Strategy
Realized
Strategy
+ Couponing
Unrealized
Strategy
Emergent
Strategy
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Exhibit 1.4 (B): Strategy
Formulation Activities at General
Mills’ Cereal Business
Intended
Strategy:
"The Plan"
+
+
Maintain
premium
prices
Deliberate
Strategy
+ Maintain
premium
prices
Couponing
Unrealized
Strategy
+ Couponing
Realized
Strategy
+ Premium
prices
+ Lower market
share
Emergent
Strategy
+ Store brands,
generics
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What Makes Strategic
Management “Strategic?”

Strategic decisions have the potential to affect the
health or direction of a business in a profound way:
 Strategic
decisions are important.
 Strategic decisions involve significant reallocations
of resources.
 Strategic decisions tend to involve more than one
functional department.

Strategic decisions are not tactical decisions, which
are made on routine corporate matters.
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Managerial Thinking

According to conventional approaches to strategic
management. Firm performance is largely a function
of industry structure.
 Firms
operating in less competitive industries will
enjoy higher performance than firms operating in
highly competitive environments.

This course emphasizes that managerial thinking is
the result of their mental models:
 Deeply
ingrained assumptions, generalizations, or
even pictures that influence how they understand
the world and how they take action.
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Managerial Thinking
(cont.)
 Mental
models tell us what is and is not important
to us, what we like and do not like, what we should
and should not notice.
 Managerial thinking -- contained in managers’
mental models -- influences strategic decision
making and the actions firms take.
 See Exhibit 1.5 on next slide.
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Exhibit 1.5: Relationships among
Managers’ Mental Models,
Decision Making, Strategies, and
Performance Outcomes
Mental
Models
Decision
Making
Strategies
Performance
Outcomes
Feedback
reinforces or suggests
changes in managers'
mental models
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A Model of Strategic
Management


See Exhibits 1.6 and 1.7 on following slides.
This course will focus on four types of mental
models and decisions:
 Mental
models about industry environments and
how these beliefs influence decisions about business
definition and positioning (chapters 4, 5, and 6).
 Beliefs about how to compete and how these mental
models influence decisions about business strategy
(chapters 7 and 8).
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A Model of Strategic
Management (cont.)

Types of mental models and decisions (cont.):
 Beliefs
about the appropriate scale and scope of the
business enterprise, beliefs about how firms’
businesses are related, and beliefs about how
diversification should be managed and how these
mental models influence decisions about corporate
strategy (chapter 9).
 Beliefs about how to organize and how these
mental models influence decisions about
organizational structure (chapter 10).
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Exhibit 1.6: Model of Strategic
Management
Decisions about
Business Definition
Managers' Mental Models
+ Industry environments
+ How to compete
+ Appropriate size/diversity,
how businesses are related,
how diversification should
be managed
+ How to organize
Decisions about
Business Strategy
Decisions about
Corporate Strategy
and Diversification
Market Position,
Resources, and
Capabilities
Performance
and
Competitive
Advantage
Decisions about
Organizational
Structure
Feedback
reinforces or
suggests changes
in managers'
mental models
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Exhibit
The Industry or
Competitive Environment
1.7
The Firm
Managers’
Mental
Models
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A Model of Strategic
Management (cont.)


This course will look at general managers and the
task of building competitive advantage (chapters 2
and 3).
Course concludes with a look at the problem of
organizational responsiveness (chapters 11 and 12).
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Three Key Themes for
this Book

Managers and managerial thinking.
 We
must understand the thinking that causes
managers to make a particular set of decisions
rather some other set of decisions.

Change and the need to think dynamically about
strategic management.
 Today's
strategies will be ineffective in the future -due to the changing nature of industries and
competitive environments.
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Three Key Themes for
this Book (cont.)

Importance of organizational learning.
 As
the business world becomes increasingly
knowledge-intensive, the ability to learn, store,
retrieve, and exploit new knowledge and
information will become a key source of sustained
competitive advantage.
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A Look Ahead

Model of strategic management in Exhibits 1.6 and
1.7 explains many business situations of today,
including the erratic performance of two very large
American companies who failed to keep pace with
changing business environments:
 General
Motors
• Market share dropped from 50+% in 1980 to just
over 30% by end of 1980s.
– GM’s cars became dated.
– It fell behind technologically and lost its manufacturing
competitive advantage.
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A Look Ahead
(cont.)
– GM’s internal structures had become ossified.
• Their managers failed to anticipate or quickly
respond to profound changes in automobile
industry.
 IBM
• Their managers did not anticipate, or could not
accept, the dramatic pace at which the industry
shifted focus to the PC.
– They continued their “mainframe mentality” for many
years, while competitors grabbed important market share
from them.
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A Look Ahead

(cont.)
However, Gillette is a company who has enjoyed a
sustained competitive advantage in its field.
 Due
largely to the belief of the company’s top
managers that innovation and renewal are essential
to its success.
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Conclusion


This chapter reviewed some of the important
characteristics of today’s business environments.
Introduction to field of strategic management.
 Strategy
defined as “a pattern in a stream of
decisions.”
 The “emergent” nature of the strategy formulation
and implementation processes were described.

Model of strategic management was introduced.
 Will
serve as the organizing framework for this
book.
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Key Points Introduced
in Chapter 1

Context of strategic management in dynamic.
 Today’s
business world is one of profound changes.
 Changes present managers with great
opportunities, but also pose significant challenges.

Strategy’s focus or level of analysis is unique.
 In
today's business schools, strategy focuses on
overall management of firms and businesses.
• Most business courses focus on functional areas
(finance, marketing, etc.).
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Key Points Introduced
in Chapter 1 (cont.)

This book emphasizes critical role of general
managers and strategic thinking in understanding
industry environments, defining or positioning
businesses in their competitive arenas, developing
and maintaining capabilities, and developing
organizational structures.
 In
contrast, most textbooks on strategic
management stress importance of industry
structure as primary influence on firm
performance.
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Key Points Introduced
in Chapter 1 (cont.)

Focus on managers’ mental models.
 Mental
models are simplified representations of
phenomena we encounter.
• Models contain our attitudes, beliefs, and
understandings about these phenomena.

This book organized around model of strategic
management which emphasizes importance of
managers’ mental models about:
 Industry
environments and how those beliefs
influence business decisions.
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Key Points Introduced
in Chapter 1 (cont.)

Model of strategic management (cont.)
 How
businesses should compete and how those
decisions influence business strategy.
 Appropriate scale and scope of their firms.
 How their firms’ businesses are related.
 How diversification should be managed and how
those beliefs influence corporate strategic
decisions.
 How to organize and how those beliefs influence
decisions about organizational structure.
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