MGT100

Principles of Management

Session 6: Introduction to Strategy

Strategic Management

2

Learning outcomes

On completion of this week’s study, students will be able to:

Demonstrate an understanding of the different types of business strategy

Explain the relationship between strategic capabilities and organisationalperformance and success

Describe the factors that might influence the development and implementation of corporate strategy.

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Strategic Management

Study questions:

What is strategic management?

What types of strategies are used by organisations?

How are strategies formulated?

What are the current issues in strategy implementation?

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What is Organisational Strategy?

Organisational strategy

‘A pattern in a stream of organisational decisions’ (Henry Mintzberg).

Must be viewed in the context of several decisions and the consistency among the decisions.

Strategic intent

Focuses and applies organisational energies on a unifying and compelling goal.

Strategies may change as environmental conditions change.

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Strategic Management

Strategic management

The process of formulating and implementing strategies to accomplish long-term goals and sustain competitive advantage.

Strategic management essentially involves:

looking ahead;

understanding the environment and the organisation; and

positioning the organisation for competitive advantage in changing times.

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The Strategic Management Process

Strategy formulationThe process of creating strategy.

Involves assessing existing strategies, organisation and environment to develop new strategies/plans capable of delivering future competitive advantage.

Strategy implementationThe process of allocating resources and putting strategies into action.

Once strategies are created, they must be acted on to achieve the desired results.

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The Strategic Management Process

Five strategic management tasks

1. Identify organisational mission and objectives.

2. Assess current performance in relation to mission and objectives.

3. Create strategic plans to accomplish purpose and objectives.

4. Implement the strategic plans.

5. Evaluate results; change strategic plans and/or implementation processes as necessary.

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Mission, Values and Objectives

The mission or purpose of an organisation may be described as its reason for existence in society.

Mission statement

Identifies the domain in which the organisation intends to operate, including customers, products and/or services, and location.

Should communicate the underlying philosophy that will guide employees.

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SWOT Analysis

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Activity

Conduct a SWOT analysis for purchasing a new car and be prepared to discuss this analysis during the online lecture.

What would be a strength or positive for buying a new car?

What would be a weakness or negative for buying a new car?

What opportunities would a new car give you?

What would be some of the ‘threats’ you would face if you bought a new car?

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Porters Five Forces Model

Unattractive industry

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Porters Five Forces Model

Attractive industry

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Levels of Strategy

Corporate strategy Sets long-term direction for the total enterprise.

Business strategy Identifies how a division or strategic business unit will compete in its product or service

domain.

Strategic business unit (SBU) A major business area that operates with some autonomy.

Functional strategy Guides activities within one specific area of operations.

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Growth and Diversification Strategies

• Growth strategies involve expansion of the organisation’s current

operations.

Growth through concentration is within the same business

area.

Growth through diversification is by acquisition of or

investment in new and different business areas.

Growth through vertical integration is by acquiring suppliers

or distributors.

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Restructuring and Divestiture Strategies

When an organisation has performance problems, a retrenchment strategy may be used to reduce the scale of current operations.

Liquidation is when operations cease due to the complete sale of assets/bankruptcy.

Restructuring changes scale and/or mix of operations to improve efficiency/performance.

Downsizing decreases the size of operations with the intention of becoming more streamlined.

Divestiture sells off parts of organisation to focus attention and resources on core business areas.

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Cooperation in Business Strategy

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In strategic alliances, organisations join together in partnership to pursue an area of mutual interest.

Outsourcing alliances are contracts to purchase important services from another organisation such as payroll, IT, and security.

Distribution alliances involve organisations joining together to accomplish product or service sales and distribution.

Strategy Formulation

Sustainable competitive advantage exists through realising cost and quality, knowledge and speed, creating a market stronghold and protecting financial resources.

The major opportunities for competitive advantage are found in:

1. Cost and quality

2. Knowledge and speed

3. Barriers to entry

4. Financial resources.

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Vehicle Industry Examples

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Strategy Formulation

• A differentiation strategy offers products that are unique and

different from the competition.

• A cost leadership strategy seeks to operate with lower costs

than competitors.

• A focused differentiation strategy offers a unique product to a

special market segment.

• A focused cost leadership strategy seeks the lowest costs of

operations within a special market segment.

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Strategy Formulation

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Portfolio Planning

Portfolio planning Seeks the best mix of investments among alternative business opportunities.

In multi-business situations, allocates scarce resources among competing uses.

The BCG matrix analyses business opportunities according to market growth rate and market share. See diagram on next slide.

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The BCG Matrix

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The GE Business Screen

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Adaptive Strategies

• The Miles and Snow adaptive model:

A Prospector strategy pursues innovation and new

opportunities with prospects for growth.

A defender strategy emphasises existing products and

market share without seeking growth.

An analyser strategy maintains the stability while exploring

selective opportunities.

A reactor strategy responds to competitive pressures in order

to survive.

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Emergent Strategies

Emergent strategies

Develop progressively over time as ‘streams’ of decisions made as managers learn and respond to situations.

Contains element of ‘craftsmanship’ which is often overlooked my managers, who choose and discard strategies quickly using formal models.

Incremental/emergent strategic planning helps managers become good at implementing strategies, not just formulating them.

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Strategy Planning Pitfalls

Failures of substance reflect inadequate attention to the major strategic planning elements.

Failures of process reflect poor handling for the accomplishment of strategic plans.

Corporate governance System of control/monitoring of top management.

Strategic leadership Capability to enthuse people to engage in process of continuous change,

performance enhancement and implementation of organisational strategies.

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Strategic Management

Summary:

What are the foundations of strategic competitiveness?

What is strategic management?

What types of strategies are used by organisations?

How are strategies formulated?

What are the current issues in strategy implementation?

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Module endThis is the end of this online module.