Post on 13-Jan-2016
Strategic Management
• Evolution• Interpretations• Theorists/ Gurus/ Critics
UCAN 28July98
Multi-disciplinary Nature
Strategic Management
EngineeringEngineering
SociologySociology
BusinessPractice
BusinessPractice
Case Studies
Case Studies
OrgPsychology
OrgPsychology
PoliticalScience
PoliticalScience
AcademicsAcademics
MilitaryMilitary
IndustrialEconomics
IndustrialEconomics
Scope of Strategic Management
• Process and Content balance
• Improving organizational effectiveness
• Long term effects
• Broad knowledge of the organization
• Balancing internal capabilities & external realities
• Choosing between strategies
• Implementing action
Terminology
• Strategy - concepts used in the management discipline
• Strategic planning - use of the concepts to develop a plan of action
• Strategic management - analysis and practice of strategy including the implementation of strategic plans
Traditional Strategy
• Generalship - formulating manoeuvres to obtain a specific goal
• Drafting war plans and shaping campaigns and their component battles
• Using judgement, intuition and best available information to effect success
• Selection and maintenance of the aim - the basis of planned sequences to attain the objective
Sun Tzu & the Art of Business
• Capture your market without destroying it• Avoid competitors’ strengths - attack
weaknesses• Use foreknowledge & deception to maximize the
power of business intelligence• Use speed & preparation to swiftly overcome the
competition• Use alliances & strategic control points in the
industry to shape your opponents & make them conform to your will
• Develop your character as a leader to maximize the potential of your employees (McNeilly,1997)
Historical Evolution
• Previous management models• Strategy & structure - Chandler• Design school - Andrews• Planning school - Ansoff• Competitive strategy/ advantage - Porter• Learning school - Mintzberg
Management Theory - Revision
• Scientific Management
• Classical Management & Organizational Theory
• Human Relations
Precursor models to Strategic Management
Scientific Management
• F W Taylor - hence Taylorism
• Engineering concepts applied to human activity
• Task specialization
• Measure, analyze & control - time & motion
• Application to administrative tasks
• Productivity rewards based on output performance
Classical Management
• Development of rational principles of management & organization design
• Complementary to scientific management
• Fayol’s 14 principles & Weber’s Ideal bureaucracy
• Functional specialization, lines of authority, span of control, planning and controlling
Human Relations
• Paternalism - Victorian concept of authority & proper behaviour of workers
• Welfarism - employee support, morale and productivity links
• Motivation - Maslow’s hierarchy of human needs
• Perception - McGregor’s Theory X and Theory Y - notion of employees
Modern Developments
• Chandler
• Ansoff
• Porter
• Mintzberg
Alfred D Chandler
•Study of US firms’ evolution as business entities
•Determined stages of corporate structural development based on growthstrategies used:
•entrepreneurial•functional management•multidivisional corporation
Chandler - Entrepreneurial
E m p loyee 1 E m p loyee 2 E m p loyee n
O w n er/M an ag erE n trep ren eu r
Entrepreneur dominates & participates in all businessThrives on challengeTHENExpansion in production & employees adds complexityGreater administrative workloadsGrowing markets & competitorsLEADS TO
Chandler - Functional
E m p loyees
M arke tin gM an ag er
E m p loyees
P rod u c tionM an ag er
E m p loyees
F in an ceM an ag er
P res id en t
Functional specialization by assigning executivesto manage business functionsGROWTH occurs due to:Vertical integration of suppliers/outletsProduct diversificationLEADS TO
Chandler - Multidivisional Corp
C orp ora teS u p p ort
M arke tin g P rod u c tion F in an ce
D ivis ion a lP res id en t
D ivis ion a lP res id en t
D ivis ion a lP res id en t
C E O
More efficient allocation of resources, accountability for performance & coordination between units
Chandler - Conclusions
• Structures usually begin with a highly centralized, low formalization & low complexity organization.
• Structural change occurs depending on the growth strategies employed.
• Structure follows strategy
H. Igor Ansoff
• Andrews’ Design School - sought environmental fit - matching internal SW to external OTs
• Ansoff’s Planning School - concentrated on formulation of objectives - use highly rational & detailed strategic planning processes
H. Igor Ansoff
• Business policy decisions affect 3 main areas:– operational: improving current activities– administrative: supporting and
organizing– strategic: shaping future activities
• Recurring operational problems indicate the need for strategic decisions
H. Igor Ansoff
• Planning Horizon - as far as you can see to predict the future with an accuracy of +/- 20%
• Concept of synergy - obtaining greater advantage from the combination of individual components of the organization - eg economies of scale leading to higher revenues
H. Igor Ansoff
• Strategic Issues Management - recognition & resolution
• Assumptions– manage issue that influence the
organization– the organization is able to engage in the
process and manage it– identify issues by SWOT& scanning– early discovery improves chances of
resolution & enhanced organizational performance
H. Igor Ansoff
• Strategic options– existing products to existing markets– existing products to new markets– new products to existing markets– new products to new markets
Michael Porter
• Introduced economic view to field
• Deterministic approach: STRUCTURE-CONDUCT-PERFORMANCE
• Market structure determines conduct of firm which determines performance
• Need to select a strategy that provides a competitive advantage
Michael Porter
POTENTIAL ENTRANTS
SUPPLIERS BUYERS
SUBSTITUTES
INDUSTRY COMPETITORS
Threat of New Entrants
Threat of Substitute Products
or Services
Bargaining Power
of Suppliers
Bargaining Power of Buyers
Rivalry among existing firms
First: Determine Industry Attractiveness
Michael PorterNext: Select a strategy for the Industry
• Low cost or Differentiation strategy
• Achieved by – cost leadership– differentiation– focus
• cost focus• differentiation focus
Michael Porter
Cost Leadership - being the lowest cost producer in the industry
– Compete on price, sell for less, still make profit eg No Name goods, Hyundai cars
– Hold price to that of rivals and make higher profits as costs are lower
Michael Porter
• Differentiation - unique in one or more lines valued by buyers eg Honda motorcycles, Body Shop products
• Focus - tailored strategies to serve selected segments or a group of segments in an industry
Porter’s Generic Strategies
Appropriate for commodity products & high priceelasticity markets
Consider:investing in plant & equipmentriding the experience curve to economies of scalestringent cost control & minimizationmarginal contribution analysis & aggressive pricing
Low Cost Producer
Differentiation Product is market unique in design, special features,quality or service. The greater the breadth of purchasermotives the greater the opportunities for differentiation.
Focussed Niche Specialization in chosen product market - may be geographic, related to customer groups or to product function.
Henry Mintzberg
• Definitions of strategy:
– as Plan - intended course of action– as Pattern - consistency in stream of
decisions and actions– as Position - firm’s location in the
environment– as Perspective - collective view of the
world based on experience
Henry Mintzberg
Intended strategy
Realizedstrategy
Unrealized strategy Emergent
strategy
Deliberatestrategy
Henry Mintzberg
• Criticism of strategic planning ‘fallacies’:
• Fallacy of Prediction - unreasonable to expect any accuracy in forecasts
• Fallacy of Detachment - impossible to adopt fully dispassionate approach in planning
• Fallacy of Formalization - difficult to formalize the irrational nature of the market or its operations
*Planned & emergent strategy
*Environmental scan: qualitative & quantitative
*Term 5 years plus
*Operations: MIS & Business IS
*Planning hierarchy: strategic, corporate operational
*Capital budget > recurrent
*Planned & emergent strategy
*Environmental scan: qualitative & quantitative
*Term 5 years plus
*Operations: MIS & Business IS
*Planning hierarchy: strategic, corporate operational
*Capital budget > recurrent
*Constrained strategy
*Environmental scan: quantitative emphasis
*Longer term (3 years)
*Operations MIS
*Control / accountability
*More external focus
*Devolved operations
*Outputs / results
*Extended budget
*Constrained strategy
*Environmental scan: quantitative emphasis
*Longer term (3 years)
*Operations MIS
*Control / accountability
*More external focus
*Devolved operations
*Outputs / results
*Extended budget
PlanningEffectiveness
PlanningEffectiveness
*Strategy by accident
*Short term
*Operations
*Control
*Annual Budget
*Inputs focus
*Strategy by accident
*Short term
*Operations
*Control
*Annual Budget
*Inputs focus
*Learning
*Path dependencies
*Complementary assets
*Complementary technologies
*Transaction costs
*Strategic HRM
*Learning
*Path dependencies
*Complementary assets
*Complementary technologies
*Transaction costs
*Strategic HRM
PHASE 1Basic FinancialPlanning
PHASE 1Basic FinancialPlanning
PHASE 2Corporate Planning
PHASE 2Corporate Planning
PHASE 3StrategicPlanning
PHASE 3StrategicPlanning
PHASE 4Strategic Management
PHASE 4Strategic Management
Evolution of Strategic ManagementEvolution of Strategic Management
PLANNING
SYSTEM
PLANNING
SYSTEM
MANAGEMENT
CONTROL
SYSTEM
MANAGEMENT
CONTROL
SYSTEM
ORGANIZATION
STRUCTURE
ORGANIZATION
STRUCTURE
COMMUNICATIONS
& INFORMATION
SYSTEM
COMMUNICATIONS
& INFORMATION
SYSTEM
MOTIVATION
&
REWARDS
SYSTEM
MOTIVATION
&
REWARDS
SYSTEM
• HUMAN RESOURCES
• ORGANIZATION CULTURE
• HUMAN RESOURCES
• ORGANIZATION CULTURE
ORGANIZATIONAL PLANNING & IMPLEMENTATIONORGANIZATIONAL PLANNING & IMPLEMENTATION