Strategic Management

“Without a strategy

the organization is like a

ship without a rudder.”

Joel Ross and Michael Kami

Chapter Roadmap• What Is Strategy?– Identifying a Company’s Strategy

– Strategy and the Quest for Competitive Advantage

– Strategy Is Partly Proactive and Partly Reactive

– Strategy and Ethics: Passing the Test of Moral Scrutiny

• The Relationship Between a Company’s Strategy and Its Business Model

• What Makes a Strategy a Winner?

• Why Are Crafting and Executing Strategy Important?

Thinking Strategically:The Three Big Strategic Questions

1. Where are we now?

2. Where do we want to go?

– Business(es) to be in and market positions to stake out

– Buyer needs and groups to serve

– Outcomes to achieve

3. How will we get there?

– A company’s answer to “how will we get there?” is its strategy

What Is Strategy?

• Consists of the combination of competitive moves and business approaches used by managers to run the company

• Management’s “game plan” to

– Attract and please customers

– Stake out a market position

– Compete successfully

– Grow the business

– Achieve targeted objectives

• Large-scale, future-oriented plan• Used to interact within competitive

environment to achieve company goals• Provides a framework for managerial

decisions• Reflects a company’s awareness of the

main elements of competition

• Strategy is about affecting the overall activities of an organization in ways to make the organization a winner.

• Strategy is about survival in fierce (severe) competition.

Strategy – A Seminal (determining) Definition

• In his book, Russel L Ackoff (1970) discuss the characteristics of strategy. He describe three characteristics that define the concept of strategy.

• Strategy deals with concerns that are central to the livelihood and survival of the entire corporation and usually involve a large portion of the organizations resources.

• Strategy represents new activities or areas of concern and typically addresses issues that are unusual for the organization rather than issues that lend themselves to routine decision making.

• Strategy has repercussive (consequence) for the way other, lower lend decisions in the organization are made

• How to please customers

• How to respond to changing market conditions

• How to outcompete rivals

• How to grow the business

• How to manage each functional piece of the business and develop needed organizational capabilities

• How to achieve strategic and financial objectives

Strategy is HOW to . . .

The Hows ThatDefine a Firm's Strategy The Hows ThatDefine a Firm's Strategy

What Are a Company’s Strategic Choices?

• Trial-and-error organizational learning about

– What has worked and

– What has not worked

• Management’s appetite for taking risks

• Managerial analysis and strategic thinking about how best to proceed, given prevailing circumstances

Strategic choices are based on . . .

Strategy Strategic Management

A series of goal directed decisions and actions matching an organizations skills and resources with the opportunities and threats in its environment

• Analyze current situation• Develop appropriate strategies • Put strategies into action• Evaluate, modify, or change strategy

Strategy Involves Strategic Management

• Organization’s goals • Goal-oriented action• Related decisions and actions • Internal Strengths• External opportunities and threats

• Planning • Organizing • Implementing • Controlling

Dimensions of Strategic Decisions

• Strategic issues require top-management decisions– Strategic decisions overarch several areas of a

firm’s operations–Usually only top management has the

perspective needed to understand their broad implications –Usually only top managers have the power to

authorize necessary resource allocations

Dimensions of Strategic Decisions

• Strategic issues require large amounts of the firm’s resources– They involve substantial allocations of people,

physical assets, and money– Strategic decisions commit the firm to actions

over an extended period– In highly competitive firms, achieving and

maintaining customer satisfaction frequently involves commitment from every facet of the firm

Dimensions of Strategic Decisions• Strategic issues often affect the firm’s long-

term prosperity– Strategic decisions commit the firm for a long

time, typically 5 years; however the impact lasts much longer–Once a firm has committed itself to a strategy,

its image and competitive advantages are usually tied to that strategy– Firms become known for what they do and

where they compete. Shifting away from that can jeopardize their previous gains.

Dimensions of Strategic Decisions

• Strategic issues are future-oriented– They are based on what managers forecast,

rather than what they know– Emphasis is on the development of solid

projections that will enable a firm to seek the most promising strategic options–A firm will succeed only if it takes a proactive

(anticipatory) stance toward change

Dimensions of Strategic Decisions

• Strategic issues usually have multifunctional or multi-business consequences. – Strategic decisions have complex implications

for most areas of the firm–Decisions about customer mix, competitive

emphasis, or organizational structure involve a number of the firm’s SBUs, divisions, or program units

Dimensions of Strategic Decisions

• Strategic issues require considering the firm’s external environment–All businesses exist in an open system. They

affect and are affected by external conditions that are largely beyond their control – Successful positioning requires that strategic

managers look beyond operations and consider what relevant others are likely to do

Three Levels of Strategy

• Corporate level: board of directors, CEO & administration [Highest]

• Business level: business and corporate managers [Middle]

• Functional level: Product, geographic, and functional area managers [Lowest]

The Nature and Value of Strategic Management

• Strategic management:

The set of decisions and actions that result in formulation and implementation of plans designed to achieve a company’s objectives

Nine Critical Tasks of Strategic Management

• Formulate the company’s mission• Conduct an internal analysis• Assess the external environment –

competitive and general contexts• Analyze the company’s options by matching

its resources with the external environment• Identify the most desirable options in light of

the 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 long-term objectives and grand strategies

• Implement the strategic choices• Evaluate the success of the strategic process

for future decision making

Alternative Strategic Management Structures

Characteristics of Strategic Management Decisions: Corporate

• Often carry greater risk, cost, and profit potential

• Greater need for flexibility• Longer time horizons• Choice of businesses, dividend policies,

sources of long-term financing, and priorities for growth

Characteristics of Strategic Management Decisions: Functional

• Implement the overall strategy formulated at the corporate and business levels

• Involve action-oriented and operational issues• Relatively short range and low risk• Modest costs: depend upon available

resources• Relatively concrete and quantifiable

Characteristics of Strategic Management Decisions: Business

• Help bridge decisions at the corporate and functional levels

• Less costly, risky, and potentially profitable than corporate-level decisions

• More costly, risky, and potentially profitable than functional-level decisions

• Include decisions on plant location, marketing segmentation, and distribution

Formality in Strategic Management

• Formality is the degree to which participation, responsibility, authority, and discretion in decision-making are specified in strategic management

Forces Determining Formality

• Organizational Size• Predominant

Management Styles• Complexity of

Environment• Production Process

• Problems in the Firm• Purpose of the

Planning System• Stage of Firm’s

Development

Benefits of Strategic Management

• Managers at all levels interact in planning and implementing strategy

• Similar to participative decision making• Assessing strategy formulation requires

looking at nonfinancial evaluations as well as financial ones

• Promoting positive behavioral consequences enables achievement of financial goals

Risks of Strategic Management

• Managers’ time away from other responsibilities

• Unrealistic expectations promised by strategy formulators

• Possible disappointment of participating subordinates if goal is not reached

• A company’s strategy is a work in progress

• Changes may be necessary to react to

– Fresh moves of competitors

– Evolving customer preferences

– Technological breakthroughs

– Shifting market conditions

– Crisis situations

Why Do Strategies Evolve? (Develop)

Crafting Strategy Is an Exercise in Entrepreneurship

• Strategy-making is a market-driven activity that involves– Studying market trends and competitors’ actions– Keen observation of customer needs– Scrutinizing business possibilities based on new

technologies– Building firm’s market position via acquisitions or new

product introductions– Pursuing ways to strengthen firm’s competitive

capabilities– Proactively searching out opportunities to

• Do new things or• Do existing things in new or better ways