Power point set 001 definitions of strategy spring 2009

Strategic Management/Business Policy

Power Point Set #1:

Definitions of Strategy

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The Wisdom of Choice:

“To try and fail is at least to learn; to fail to try is to suffer the inestimable loss of what might have been.”

– Chester Barnard, The Functions of the Executive

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What Is Strategic Management About?

Understanding how firms create, capture, and sustain competitive advantage.

Analyzing strategic business situations and formulating strategic plans.

Implementing strategy and organizing the firm for strategic success.

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Identify current mission and strategic goals

Conduct competitive analysis:•strengths•weakness•opportunity•threats

Develop specific strategies:•corporate•business•functional

carry out strategic plans

maintain strategic control

assess organisational factors

assess environmental factors

Strategy implementationStrategy formulation

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What Is Strategic Management About?

Sustainable competitive advantage occurs when a firm implements a value-creating strategy of which other companies are unable to duplicate the benefits or find it too costly to imitate.

An important basis for sustainable competitive advantage is the development of resources and capabilities.

Core competencies are resources and capabilities (often related to functional-level skills) that serve as a source of competitive advantage for a firm over its rivals.

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Key Characteristics Of Strategic Decisions

Important;

Typically, under some Uncertainty;

Involves Alternatives, Consequences, and Choice;

Significant Commitment of Resources; and

Not Easily Reversible.

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Strategy Making : Design or Process?Strategy Making : Design or Process?

Strategy as Design

Planning andrational choice

INTENDEDSTRATEGY

Many decision makersresponding to multitude ofexternal and internal forces

REALIZED STRATEGY

EMERGENTSTRATEGY

Strategy as Process

Mintzberg’s Critique of Formal Strategic Planning:•The fallacy of prediction – the future is unknown•The fallacy of detachment -- impossible to divorce formulation from

implementation•The fallacy of formalization --inhibits flexibility, spontaneity,

intuition and learning.




Strategy Making : Design or Process?Strategy Making : Design or Process?

Strategy as Design

Planning andrational choice

INTENDEDSTRATEGY

Many decision makersresponding to multitude ofexternal and internal forces

REALIZED STRATEGY

EMERGENTSTRATEGY

Strategy as Process







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The Evolution of Strategic ManagementThe Evolution of Strategic Management

DOMINANTTHEME

MAINISSUES

CONCEPTS&

TECHNIQUES

IMPLEMENT-ATION

1950s 1960s Early-mid Late1970s Late 1980s Late 1990s1970s early 1980s early 1990s early 2000s

Budgetary Corporate Corporate Analysis of Quest for Strategicplanning & planning strategy industry & competitive innovationcontrol competition advantage The “New

Economy”Financial control Planning growth Diversifica- Positioning Competitive Innovation &

ion advantage knowledge

Budgeting Forecasting & Portfolio Analysis of Resource Dynamic project appraisal investment planning. industry & analysis. sources of

planning Synergy competition Case advantagemarket competences Knowledgeshare management

cooperation

Emphasis on Rise of Diversifi- Industry/market Restructuring Virtual orga-financial corporate planning cation. selectivity. BPR. nization.management departments Quest for Active asset Refocusing Alliances

& formal global management Outsourcing Quest forplanning market share critical mass

The Evolution of Strategic ManagementThe Evolution of Strategic Management

DOMINANTTHEME

MAINISSUES

CONCEPTS&

TECHNIQUES

IMPLEMENT-ATION

1950s 1960s Early-mid Late1970s Late 1980s Late 1990s1970s early 1980s early 1990s early 2000s

Budgetary Corporate Corporate Analysis of Quest for Strategicplanning & planning strategy industry & competitive innovationcontrol competition advantage The “New

Economy”Financial control Planning growth Diversifica- Positioning Competitive Innovation &

ion advantage knowledge

Budgeting Forecasting & Portfolio Analysis of Resource Dynamic project appraisal investment planning. industry & analysis. sources of

planning Synergy competition Case advantagemarket competences Knowledgeshare management

cooperation

Emphasis on Rise of Diversifi- Industry/market Restructuring Virtual orga-financial corporate planning cation. selectivity. BPR. nization.management departments Quest for Active asset Refocusing Alliances

& formal global management Outsourcing Quest forplanning market share critical mass

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The Basic FrameworkStrategy: the Link between the

Firm and its Environment



THE FIRM

Goals & Values

Resources &Capabilities

Structure & Systems

THE INDUSTRYENVIRONMENT

CompetitorsCustomersSuppliers

STRATEGYSTRATEGY





THE FIRM

Goals & Values

Resources &Capabilities

Structure & Systems

THE INDUSTRYENVIRONMENT

CompetitorsCustomersSuppliers

STRATEGYSTRATEGY

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How Does It Compare to Other Business Classes?

Mktg. Oper.

Strategy

Finance

Acctg. H.R.

Task environment

Macro level environment

The firm

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Task Environment

Customers and Markets: Distributors End users

Competitors: Competitors for Markets Competitors for Resources

Suppliers: Suppliers of physical resources Suppliers of financial resources Suppliers of human resources

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Task Environment

Regulatory Groups:

Government Unions Special Interest Groups

Technology:

Rate of DevelopmentSubstitutesStage of Product or Industry

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The Role of Strategy In Business is to Generate and Sustain Value via the Linkages Between Position, Resources, and Organization

Positioning

Resources& Capabilities

Organization

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Positioning

Scope of the Firm:

Geographic Scope

Product-market Scope: Choice of businesses (corporate portfolio analysis)

Product Market Positioning within a business

Vertical integration decisions

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Resources

Tangible Resourcese.g., physical capital

Organizational Capabilitiese.g., routines and standard operating procedures

Intangible Resourcese.g., trademarks, “know-how”

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Organization

StructureFormal Definition of authorityConflict Resolution

SystemsRules, Routines, Evaluation and rewards

ProcessesInformal communication, networks, recruitment

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Definitions of Strategy

The term “strategy” is intended to focus on the interdependence of the adversaries’ decisions and on their expectations about each other’s behavior” (Thomas Schelling The Strategy of Conflict)

“Strategy can be defined as the 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 those goals.” (Alfred D. Chandler Strategy and Structure)

Strategy is: “The pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole. A well formulated strategy helps to marshal and allocate an organization’s resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment , and contingent moves by intelligent opponents.” (James Brian Quinn, Logical Incrementalism)

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Abell’s Framework for Defining the Business

Who is beingsatisfied?

Customer Groups

What is beingsatisfied?

Customer Needs

How arecustomer needs

satisfied?Distinctive

Competencies

Definitionof Business

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Defining the Business: The Starting Point of Strategy

Example: Fall of the Railroads

“They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry wrong was because they were railroad oriented instead of transport oriented; they were product oriented instead of customer oriented.”

Theodore Levitt “Market Myopia”

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Mission Statement and Goals

It is the function of the top management team to provide the firm’s purpose or “strategic intent.”

Chester Barnard The Functions of the Executive

Alfred Sloan My Years with General Motors

Komatsu ---> “Encircle Caterpillar”Canon ---> “Beat Xerox”Kodak ---> “Be the leader in the imaging sector”Coca Cola ---> “To put a Coke within ‘arms reach’ of every consumer in the world.”

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Fundamental question of the choice of Goals: Planning for what purpose(s)?

Profitability (net profits)Efficiency (low costs)Market ShareGrowth (e.g., increase in total assets, sales, etc)Shareholder Wealth (dividends plus stock price appreciation)Utilization of Resources (e.g., ROE, ROI)ReputationContribution to Stakeholders (e.g., employees, society)Survival (avoid bankruptcy)

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The Manager’s role in balancing expectations

Business Roundtable:“Balancing the shareholder’s expectations of maximum return against other priorities is one of the fundamental problems confronting corporate management.”

Understanding corporate strategy means understanding the competing value claims of multiple stakeholders.

Stakeholders are the individuals and groups who can affect, and are affected by, the strategic outcomes achieved and who have enforceable claims on a firm’s performance.

23Copyright © 2001 Houghton Mifflin Company. All rights reserved. 2-2

FIGURE 2.1

Stakeholders and the EnterpriseStakeholders and the Enterprise

Contributions

Contributions

Inducements

Inducements

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Key Drivers of Value Creation and Sustainable Competitive Advantage:

Generating economic value can be accomplished through:

REVENUE drivers

COST drivers

RISK drivers

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Value and Cost Drivers

Figure 2.5

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Sources of Superior Profitability

RATE OF PROFIT ABOVE THE

COMPETITIVE LEVEL

How do we make

money?

INDUSTRY

ATTRACTIVENESS

Which businesses

should we be in?

COMPETITIVE ADVANTAGE

How should we compete?

CORPORATE STRATEGY

BUSINESS STRATEGY

Sources of Superior Profitability

RATE OF PROFIT ABOVE THE

COMPETITIVE LEVEL

How do we make

money?

INDUSTRY

ATTRACTIVENESS

Which businesses

should we be in?

COMPETITIVE ADVANTAGE

How should we compete?

CORPORATE STRATEGY

BUSINESS STRATEGY

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The Levels of Strategy

R&D

HR

Finance

Production

M ktg/Sales

D ivision A

R&D

HR

Finance

Production

M ktg/Sales

D ivision B

R&D

HR

Finance

Production

M ktg/Sales

D ivision C

C orpo rateH eadquarte rsCorporate - General Electric

Business - Home Appliances

Functional - e.g., Production

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Corporate Strategy

At the corporate level, value creation can occur if the individual parts of a firm are integrated into a coherent whole.

Corporate strategy is the way a company creates value through the configuration and coordination of its multi-market activities.

29BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E © McGraw-Hill Australia 20019

Managers as decision makersAssumptions of the Rational Model

Managers as decision makersAssumptions of the Rational Model

Rationaldecisionmaking

Rationaldecisionmaking

An optimal decision is possible

An optimal decision is possible

All relevant informationis available

All relevant informationis available

All relevant information is understandable

All relevant information is understandable

All alternatives are knownAll alternatives are known

All possible outcomes knownAll possible outcomes known

30BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E © McGraw-Hill Australia 200110

Managers as decision makersSatisficing

Managers as decision makersSatisficing

‘Satisficing’decisionmaking

‘Satisficing’decisionmaking

Time constraintsTime constraints

Limited ability to understand all factors

Limited ability to understand all factors

Inadequate baseof information

Inadequate baseof information

Limited memory ofdecision-makers

Limited memory ofdecision-makers

Poor perception of factorsto be considered

in decision process

Poor perception of factorsto be considered

in decision process

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1-40

Improving Strategic Improving Strategic DecisionDecision--MakingMaking

Prior Hypothesis

Bias

EscalatingCommitment

Reasoningby

Analogy

Representa-tiveness

Illusion of

Control

Copyright

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14-25Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Symptoms of Groupthink and How to Prevent It

• Symptoms

• Illusion of invulnerability

• Belief in the inherent morality of the group

• Stereotyped views of members of opposing groups

• Application of pressure to members who express doubts about the group’s shared allusions or question the validity of arguments proposed

• Practice of self-censorship

• Appointment of mindguards

Groupthink

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Using Conflict-Inducing Decision-Making Techniques in Case Analysis

Groupthink

Devil’s Advocacy

Dialectical Inquiry

Use conflict-inducing decision-making techniques to help prevent groupthink and lead to better decisions.

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Two Conflict-Inducing Decision-Making Processes

Adapted from Exhibit 14.4 Two Conflict-Inducing Decision-Making Processes

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O u r L e a r n i n g G o a l s : P u s h i n g D o w n T h r o u g h B l o o m ’ s T a x o n o m yO u r L e a r n i n g G o a l s : P u s h i n g D o w n T h r o u g h B l o o m ’ s T a x o n o m y

1 . K n o w l e d g e : r e m e m b e r m a t e r i a l ; k n o w t e r m s , f a c t s , p r o c e d u r e s , b a s i c c o n c e p t s

2 . C o m p r e h e n s i o n : g r a s p m e a n i n g ; u n d e r s t a n d f a c t s , i n t e r p r e t c h a r t s , t r a n s l a t e v e r b a l t o m a t h e s t i m a t e c o n s e q u e n c e s

3 . A p p l i c a t i o n : u s e m a t e r i a l i n n e w s i t u a t i o n s ; a p p l y c o n c e p t s t o r e a l s i t u a t i o n s , f o l l o w a p r o c e d u r e

1 . K n o w l e d g e : r e m e m b e r m a t e r i a l ; k n o w t e r m s , f a c t s , p r o c e d u r e s , b a s i c c o n c e p t s

2 . C o m p r e h e n s i o n : g r a s p m e a n i n g ; u n d e r s t a n d f a c t s , i n t e r p r e t c h a r t s , t r a n s l a t e v e r b a l t o m a t h e s t i m a t e c o n s e q u e n c e s

3 . A p p l i c a t i o n : u s e m a t e r i a l i n n e w s i t u a t i o n s ; a p p l y c o n c e p t s t o r e a l s i t u a t i o n s , f o l l o w a p r o c e d u r e

4 . A n a l y s i s : b r e a k m a t e r i a l i n t o c o m p o n e n t s & u n d e r s t a n d s t r u c t u r e ; r e c o g n i z e l o g i c a l f a l l a c i e s , d i s t i n g u i s h f a c t a n d i n f e r e n c e , e v a l u a t e r e l e v a n c y o f d a t a

5 . S y n t h e s i s : i n t e g r a t e p a r t s t o m a k e a n e w w h o l e , i n t e g r a t e l e a r n i n g t o s o l v e a p r o b l e m

6 . E v a l u a t i o n s : j u d g e l o g i c a l c o n s i s t e n c y , j u d g e w h e t h e r c o n c l u s i o n s a r e s u p p o r t e d b y f a c t s

4 . A n a l y s i s : b r e a k m a t e r i a l i n t o c o m p o n e n t s & u n d e r s t a n d s t r u c t u r e ; r e c o g n i z e l o g i c a l f a l l a c i e s , d i s t i n g u i s h f a c t a n d i n f e r e n c e , e v a l u a t e r e l e v a n c y o f d a t a

5 . S y n t h e s i s : i n t e g r a t e p a r t s t o m a k e a n e w w h o l e , i n t e g r a t e l e a r n i n g t o s o l v e a p r o b l e m

6 . E v a l u a t i o n s : j u d g e l o g i c a l c o n s i s t e n c y , j u d g e w h e t h e r c o n c l u s i o n s a r e s u p p o r t e d b y f a c t s

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Summary “Takeaways”

Providing PURPOSE is an important function for the executive.

One important purpose is to CREATE VALUE.

Value creation can lead to SUSTAINABLE COMPETITIVE ADVANTAGE.

Power point set 001 definitions of strategy spring 2009

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