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Business Policy
Strategy Formulation
Topic 1: The Concept of Strategy and the
Strategic Management Process
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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
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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
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What is a Strategy? (2)
...the game plan management has for
positioning the company... entails choice
among alternatives and signalsorganisational commitment to specific
markets, competitive approaches, and ways
of operating. Thomson and Strickland
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The strategy
pyramidInfluence
Operating
Function
Business
Corporate
Uniting the strategy-making effort through
vertical and horizontal linkages.
Co-ordination through mutually reinforcing
vision, objectives & strategies.
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Different Levels of Strategy
Corporate - what business?
Business - how to compete in each business Functional - in support of business level
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The Strategic Management Process
Identify
currentmission,
objectives
& strategies
Analyze
Environment
Analyze
Resources
Identify
opps / threats
Identify
strengths &
weaknesses
Formulate
Strategies
Implement
Strategies
Evaluate
Results
SWOT ANALYSIS
Management, Robbins, S. & Coultar, M. 1996p. 259
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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
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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
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Who Performs the five tasks?
CEO and other managers
Strategic planners
Board of directors
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The Three Strategy Making
Tasks Develop a strategic vision/ business mission
Set objectives
Craft a strategy
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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 dont know where youre going,
any old road will take you there.
Anonymous
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Defines the current boundaries
Defines the business position
-Who are we?
- What do we do?Mission
Present
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What Business are you in: Coca
Cola
soft drinks?
Competition is Pepsi,
Finches
beverages?
Competition is tea, coffee,
softdrinksthirst -quenching?
Competition is water & all
liquids!
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Objectives
Strategic vs. Financial?
Long range vs. short range?
Challenging but achievable
Measurable
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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
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Long vs. Short term?
Long term forces
early action
long term implications
considered
Short term encourages
speedy progress
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Challenging but Achievable
objectives must be
realistic
but should stretch funds/ resources must
be available to execute
the strategy
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Measurable
Objectives must be
measureable
eg. growth in market shareof 5%
Deadlines must be set
eg. by December next
You cannot manage what
you cannot measure
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Objectives needed at all levels
Parts supporting the whole
Top-down objective-setting
- cohesion
- leadership
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Approaches to performing the
strategy making tasksMaster strategist: manager is chief architect
Delegate to others
Collaborative approach
Champion approach
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Factors that
shape strategy
Craft a
Strategy
Industry
Attractive-
ness
Society
political
regulatory
Opportunity
threat
Companys strategic situation
Strengths
weaknessManager
values /
ambitions
Culture
Evaluation
Choice
External
Internal
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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
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Industry Attractiveness
Strategy must be matched to industry and
competitive conditions eg.
technology shift
change in cost structure of industry
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Market Opportunities and Threats
Be open to opportunities
Aim at capturing best growth opportunities
Defend against threats to well-being and
future performance
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Organisational Strengths and
Weaknesses Strategy must be well-matched to the
companys strengths
strategy should be grounded in what companyis good at doing
perilous to depend on what its not good at
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Managers Values, Beliefs and
Ambitions
Management play a pivotal role
Strong leadership builds commitment
Management communication - buy-in
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Strategy formulation:
deciding what to do
what you mightdo: opportunity
what you cando: resources
what youd l iketo do: values/ambitions
what you oughtto do: ethics
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Tests for a good strategy
Goodness of fit test matches well the companys situation
internal
external Competitive advantage test
leads to sustainable competitive advantage
Performance testleads to superior performance
profitability
long term business/ market position strength
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Benefits of a Strategic Approach
Direction
Adaptable / in-tune with environment
Basis for budget/resource allocation
Unifies decisions across organisation
Encourages pro-active managementRequires strategic thinking rather than gut-
feel/drift