dr. hab. Jerzy SupernatInstitute of Administrative Studies

University of Wrocław

Managing Strategy

Managing Strategy

dr hab. Jerzy Supernat

Strategic management is a comprehensive and ongo-ing management process aimed at 1) formulating effecti-ve strategies and 2) implementing effective strategies.

Effective strategies are those that promote a superior alignment between the organization and its environment and the achievement of strategic goals.

Managing Strategy

dr hab. Jerzy Supernat

Four components of strategy:

scope (domain) resource allocation/deployment distinctive competence (competitive advantage) synergy

Managing Strategy

dr hab. Jerzy Supernat

Scope (domain)

The scope of strategy specifies the range of markets in which an organization will compete.

Some organizations, called compete in dozens or even hundreds of markets.

conglomerates, ?

Managing Strategy

dr hab. Jerzy Supernat

Resource allocation/deployment

Resource allocation denotes the distribution of organiza-tion’s resources across the areas in which it competes.

Managing Strategy

dr hab. Jerzy Supernat

Distinctive competence (competitive advantage)

Distinctive competence is something the organization does exceptionally well.

Managing Strategy

dr hab. Jerzy Supernat

Synergy

H. Igor Ansoff (1918-2002) – The Father of Strategic Management. According to him:

Synergy is any effect which can produce a combined re-turn on the firm’s resources greater than the sum of its parts.

Managing Strategy

dr hab. Jerzy Supernat

Levels of strategy (and strategic management)

Most organizations develop strategies at two distinct lev-els: business and corporate. These levels provide a rich combination of strategic alternatives for organizations.

Business-level strategy is the set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or market.

Corporate-level strategy is the set of strategic alternatives that an organization chooses from as it manages its ope-rations simultaneously across several industries and seve-ral markets.

Managing Strategy

dr hab. Jerzy Supernat

Strategy formulation and implementation

Strategy formulation is the set of processes involved in creating or determining the strategies of the organization.

Strategy implementation is the methods by which strate-gies are operationalized or executed within the organiza-tion.Sometimes the processes of formulating and implementing strategies are rational, systematic, and planned. This approach is often referred to as a deliberate strategy. Other times, however, organizations use an emergent strategy – a pattern of action that develops over time in an organization in the absence of missions and goals, or despite mis-sions and goals.

Managing Strategy

dr hab. Jerzy Supernat

SWOT analysis

The starting point in formulating strategy is usually SWOT analysis.

SWOT analysis is careful evaluation of an organization’s internal strengths and weaknesses environmental/external opportunities and threats.

In SWOT analysis, the best strategies accomplish an organization’s mission by:

• exploiting an organization’s opportunities and strengths• neutralizing its threats• avoiding or correcting its weaknesses

Managing Strategy

dr hab. Jerzy Supernat

A. Thompson, A. J. Strickland:

SWOT Analysis is grounded on the principle that strategy must produce a strong fit between a company’s internal capability (its strengths and weaknesses) and its external situation (reflected in part by its opportunities and threats).

One of the “trade secrets” of first-rate strategic manage-ment is launching initiatives internally to turn a company strength into a distinctive competence. A distinctive com-petence is something a company does especially well in comparison to its competitors.

Managing Strategy

dr hab. Jerzy Supernat

Organization’s strengths

• common strengths• distinctive competencies

A common strength is an organizational capability possessed by a large number of competing firms. Competitive parity exists when large numbers of competing firms are able to formulate and imple-ment the same strategy. In this situation organizations generally attain only average economic performance.A distinctive competence is a strength possessed by only a small number of competing firms. Organizations that exploit their distinc-tive competences often obtain a competitive advantage and attain above-normal economic performance.

Managing Strategy

dr hab. Jerzy Supernat

Strategic imitation

Strategic imitation is the practice of duplicating another organization’s distinctive competence and thereby imple-menting a valuable strategy.

When a distinctive competence cannot be imitated (when all at-tempts at strategic imitation have ceased), strategies that exploit these competences generate sustained competitive advantages. Strategic imitation might not be possible for three reasons: the acquisition or development of the distinctive competence may depend on unique historical circumstances that other organizations cannot replace competing organizations might not know or understand the nature and character of the distinctive competence a distinctive competence can be based on complex social pheno-mena (e.g. organizational culture) and difficult to imitate

Managing Strategy

dr hab. Jerzy Supernat

Organizations weaknesses

Organizations weaknesses are skills and capabilities that do not enable an organization to choose and implement strategies that support its mission.

Organizations that fail either to recognize or overcome their weaknesses are likely to suffer from competitive dis-advantages. An organization has a competitive disadvan-tage when it is not implementing valuable strategies that are being implemented by competing organizations. Orga-nizations with a competitive disadvantage can expect to attain below-average economic performance.

Managing Strategy

dr hab. Jerzy Supernat

Porter’s generic business-level strategies

• differentiation

• overall cost leadership

• focus

A strategy in which an organization seeks to distinguish itself from competitors through the quality of its products or services.

A strategy in which an organization attempts to gain a competitive advantage by reducing its costs below the costs of competing firms.

A strategy in which an organization concentrates on a specific regional market, product line or group of buyers.

Managing Strategy

dr hab. Jerzy Supernat

Corporate-level strategies

The most important strategic issue at the corporate level concerns the extent and nature of organizational diversifi-cation.

Diversification describes the number of different business-es that an organization is engaged in and the extent to which these businesses are related to one another. The three types of diversification strategies are:

single-product/concentration strategy related diversification unrelated diversification

Managing Strategy

dr hab. Jerzy Supernat

» Don't put all your eggs in one basket. » Don't venture all your eggs in one basket.» Tis the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket (Miquel de Cervantes, 1547-1616). » Venture not all in one bottom (bottom = a ship).

4000-3000 B.C. – Bottomry contracts were known to mer-chants in Babylon during this time period. Bottomry is a ma-ritime contract: the ship's owner borrows money to outfit and repair his vessel and pledges the ship as security. But if the ship is lost during the voyage or specified time, the len-der loses his money. (Brittanica.com)

» Put all your eggs in the one basket and watch that basket (Mark Twain, 1835-1910).» The way to become rich is to put all your eggs in one basket and then watch that basket (Andrew Car-negie, 1835-1919).

Managing Strategy

dr hab. Jerzy Supernat

Single-product/concentration strategy

An organization that pursues a single product strategy: • manufactures just one product or service • sells it in a single geographic market

The single-product strategy has one major strength and one major weakness: by concentrating its efforts completely on one product and market, a firm is likely to be very successful in manufacturing and marketing the product but if the product is not accepted by the market or is re-placed by a new one, the firm will suffer

Managing Strategy

dr hab. Jerzy Supernat

Related diversification

Given the disadvantages of the single-product strategy most large organizations today operate in several different businesses, industries, or markets. If the organization’s businesses (strategic business units – SBUs) are somehow linked with one another, that organization is implementing a strategy of related diversification.

Bases of relatedness:• similar technology• common distribution and marketing skills• common brand name and reputation• common customers

Managing Strategy

dr hab. Jerzy Supernat

Advantages of related diversification

• reduces an organization’s dependence on any one of its business activities and thus reduces economic risk

• reduces the overhead costs associated with managing any one business

• allows an organization to exploit its strengths and capa-bilities in more than one business (synergy)

Managing Strategy

dr hab. Jerzy Supernat

Unrelated diversification

Organizations that implement a strategy of unrelated di-versification operate multiple businesses that are not logi-cally associated with one another. Even if there are impor-tant potential synergies between their different business-es, organizations implementing a strategy of unrelated di-versification do not attempt to exploit them.

Managing Strategy

dr hab. Jerzy Supernat

Disadvantages of unrelated diversification

• corporate level managers usually do not know enough about the unrelated businesses to provide helpful stra-tegic guidance or to allocate capital appropriately

• organizations fail to exploit important synergies and hence they are at a competitive disadvantage compared to organizations that use related diversificationFor the above reasons, almost all organizations have abandoned unrelated diversification as a corporate-level strategy (unrelated diversification was a very popular strategy in the 1960s and early 1970s).

Managing Strategy

dr hab. Jerzy Supernat

Becoming a diversified organization

internal development of new products and services

replacement of suppliers and customer backward vertical integration forward vertical integration

purchasing another organization• merger• acquisition

Concluding Remark

dr hab. Jerzy Supernat

However beautiful the strategy, you should occasionally look at the results.

Winston Churchill