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:– 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• 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 decision-making.

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• 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

• 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• 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.

• 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.

• 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

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 top-down 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

• Academic rigour

– 5 tests• Originality• Purpose• Flexibility• Logical consistency• Risk and resources