Strategy Formulation in Assembly Business
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1 THE CONCEPT OF STRATEGY THE CONCEPT OF STRATEGY AND STRATEGIC MANAGEMENT AND STRATEGIC MANAGEMENT G. Tyge Payne, PhD
description
The assemble-to-order (ATO) strategy is a hybrid between a make-to-stock strategy - where products are fully produced in advance - and the make-to-order strategy - where products are manufactured once the order has been received. The ATO strategy attempts to combine the benefits of both strategies - getting products into customers' hands quickly while allowing for the product to be customizable.
Transcript of Strategy Formulation in Assembly Business
The Concept of StrategyG. Tyge Payne, PhD
Strategic Management
Strategy: The unifying theme that gives coherence and direction to the decisions of an organization
Strategic Management: Consisting of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.
Or, the Strategic Management Process is:
The full set of commitments, decisions, and actions required for a firm to create value and earn above-average returns. (Hitt, Hoskinson, & Ireland, 2004, p. 4)
*
*
Other Definitions of Strategy
Oxford Dictionary: The art of war, especially the planning of movements of troops and ships etc., into favorable positions; plan of action or policy in business or politics etc.
Chester I. Barnard: Strategy is intended to focus on the interdependence of the adversaries’ decisions and on their expectations about each other’s behavior.
Alfred D. Chandler Jr.: The determination of the long run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.
*
*
Know Nature and know the Situation: Triumph completely.
- Sun Tzu (~360 B.C.)
Business strategy is a relatively young field of study – but its roots go back to early military strategy.
Strategy comes from the Greek word strategos, which is formed from stratos, meaning army, and –ag, meaning to lead.
*
*
More Recent Historical Development of Business Strategy
Not until very large companies with the ability to influence the competitive environment within their industries did strategic thinking in the business world begin to be articulated.
Alfred Sloan, CEO of GM, 1923 – 1946 - One of the first to analyze competition, Ford, and devise a strategic plan based on its strengths and weaknesses.
Chester Barnard, Senior Executive of New Jersey Bell, 1930s - Argued managers should pay attention to “strategic factors” which depend on “personal or organizational action.”
Wartime (WWI and WWII) efforts also impacted strategic thinking and use of formal strategic tools and concepts:
Allocation of scarce resources
The concept of “learning curves”
*
*
It wasn’t until the 1950’s that strategy was truly introduced in business schools as a way of analyzing the competitive environment and setting organizational goals and objectives to fit that environment.
These concepts serve as the foundation of strategic management study:
Previous “Business Policy” perspectives looked at maintaining a “balance in accord with the underlying policies of the business as a whole.” – Harvard
Kenneth Andrews’ SWOT Analysis was developed – still in use today.
Theodore Levitt’s “Marketing Myopia” argued that when companies fail it typically is because firms focus on the product rather than the changing patterns of consumer needs and tastes.
Igor Ansoff argued, in response to Levitt, that a firm’s mission should exploit an existing need in the market, rather than using the consumer as the common thread in business. “In reality a given type of customer will frequently have a range of product missions or needs.” Corporate Strategy, 1965.
BCG developed the “experience curve” and portfolio analysis concepts.
McKinsey & Company’s development of SBUs and the nine-block matrix.
Mintzberg’s “Deliberate, Emergent & Realized Strategies”
Porter’s Generic Strategies
Budgetary Corporate Positioning Competitive Strategic
planning & planning advantage innovation
control growth &- sectors/markets. sources of size with
diversification Positioning for competitive flexibility &
leadership advantage agility
budgeting. Corporate Segmentation capabilities. strategy.
Financial planning. Experience curve Shareholder Complexity.
planning Synergy Portfolio analysis value. Owning
E-commerce. standards.
— Knowledge Management—
& control by planning depts. Global strategies. Reengineering. networks
Budgeting created. Rise of Matrix structures Refocusing. Self -organiz
systems corporate Outsourcing. ation & virtual
planning organization
*
*
*Categories define the common thread in an organization’s business/corporate strategy.
Market
Penetration
Product
Development
Market
Development
Diversification
Present
Product
New
Product
Present
Mission
New
Mission
learning and dissemination within the organization.
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.
*
*
Creates a fit between the organization and its external environment.
Provides a process of coping with change and organizational renewal
Fosters anticipation, innovation, and excellence
Facilitates consistent decision-making
Creates organizational focus
Acts as a process of organizational leadership.
Finally and most importantly: To help the organization to succeed (outperform) against its competition!!
Why is SM, as a field of study, necessary?
Why are all these theories/tools needed ?
*
*
Strategy, Survival and Success
The ultimate goal of the organizations is to be successful – success is:
Survival (long-term success)
Achievement of Goals
Above average returns/Profitability (probably most important, because it determines the ability to achieve the above two)
Strategy can help achieve success, but it doesn’t guarantee it—certain features of strategy directly contribute to success:
Goals that are simple, consistent, and long-term.
Profound understanding of the competitive environment.
Objective appraisal of resources.
Effective implementation.
*
*
Competition provides the rationale for strategy – without competition, strategy is of no concern.
The essence of strategy is the interdependence of competitors—or the establishment of sustainable competitive advantage over rivals.
*
*
1. Where are we now? What is our situation?
2. Where do we want to go?
Business(es) we want to be in and market positions we want to stake out
Buyer needs and groups we want to serve
Outcomes we want to achieve
3. How will we get there?
*
*
External Environment
Industry Attractiveness
Strategy Formulation
I/O Model
Assets/Skills Assessment
Four Assumptions of the I/O Model
1. The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns.
Most firms competing within a particular industry are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources.
Resources used to implement strategies are highly mobile across firms.
*
Four Assumptions of the I/O Model
Both Crock and Schultz identified the strategy that allowed their companies to achieve
high profits: McDonalds through the “assembly line” of their burgers and Starbucks with
product marketing that created ambiance and consistency, a value perception that allowed
them to charge high premium for their coffee.
*
Our Approach to Studying the Strategic Management Process
Both the I/O and RBV perspectives are useful to managers and essential to understanding the strategic management process.
*
*
life cycle competitive position)
Go Beyond the Current Business Model
Design a “Grand Strategy”
Develop a Compelling Vision
Assure Enablers of Strategy
Design a Monitoring Process
Basic Decision to Make Major Change or Not
Related Issues to Monitor Implementation Process
Strategic Formulation and Implementation
How do we make money?
INDUSTRY
ATTRACTIVENESS
COMPETITIVE ADVANTAGE
Strategic Management
Strategy: The unifying theme that gives coherence and direction to the decisions of an organization
Strategic Management: Consisting of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.
Or, the Strategic Management Process is:
The full set of commitments, decisions, and actions required for a firm to create value and earn above-average returns. (Hitt, Hoskinson, & Ireland, 2004, p. 4)
*
*
Other Definitions of Strategy
Oxford Dictionary: The art of war, especially the planning of movements of troops and ships etc., into favorable positions; plan of action or policy in business or politics etc.
Chester I. Barnard: Strategy is intended to focus on the interdependence of the adversaries’ decisions and on their expectations about each other’s behavior.
Alfred D. Chandler Jr.: The determination of the long run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.
*
*
Know Nature and know the Situation: Triumph completely.
- Sun Tzu (~360 B.C.)
Business strategy is a relatively young field of study – but its roots go back to early military strategy.
Strategy comes from the Greek word strategos, which is formed from stratos, meaning army, and –ag, meaning to lead.
*
*
More Recent Historical Development of Business Strategy
Not until very large companies with the ability to influence the competitive environment within their industries did strategic thinking in the business world begin to be articulated.
Alfred Sloan, CEO of GM, 1923 – 1946 - One of the first to analyze competition, Ford, and devise a strategic plan based on its strengths and weaknesses.
Chester Barnard, Senior Executive of New Jersey Bell, 1930s - Argued managers should pay attention to “strategic factors” which depend on “personal or organizational action.”
Wartime (WWI and WWII) efforts also impacted strategic thinking and use of formal strategic tools and concepts:
Allocation of scarce resources
The concept of “learning curves”
*
*
It wasn’t until the 1950’s that strategy was truly introduced in business schools as a way of analyzing the competitive environment and setting organizational goals and objectives to fit that environment.
These concepts serve as the foundation of strategic management study:
Previous “Business Policy” perspectives looked at maintaining a “balance in accord with the underlying policies of the business as a whole.” – Harvard
Kenneth Andrews’ SWOT Analysis was developed – still in use today.
Theodore Levitt’s “Marketing Myopia” argued that when companies fail it typically is because firms focus on the product rather than the changing patterns of consumer needs and tastes.
Igor Ansoff argued, in response to Levitt, that a firm’s mission should exploit an existing need in the market, rather than using the consumer as the common thread in business. “In reality a given type of customer will frequently have a range of product missions or needs.” Corporate Strategy, 1965.
BCG developed the “experience curve” and portfolio analysis concepts.
McKinsey & Company’s development of SBUs and the nine-block matrix.
Mintzberg’s “Deliberate, Emergent & Realized Strategies”
Porter’s Generic Strategies
Budgetary Corporate Positioning Competitive Strategic
planning & planning advantage innovation
control growth &- sectors/markets. sources of size with
diversification Positioning for competitive flexibility &
leadership advantage agility
budgeting. Corporate Segmentation capabilities. strategy.
Financial planning. Experience curve Shareholder Complexity.
planning Synergy Portfolio analysis value. Owning
E-commerce. standards.
— Knowledge Management—
& control by planning depts. Global strategies. Reengineering. networks
Budgeting created. Rise of Matrix structures Refocusing. Self -organiz
systems corporate Outsourcing. ation & virtual
planning organization
*
*
*Categories define the common thread in an organization’s business/corporate strategy.
Market
Penetration
Product
Development
Market
Development
Diversification
Present
Product
New
Product
Present
Mission
New
Mission
learning and dissemination within the organization.
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.
*
*
Creates a fit between the organization and its external environment.
Provides a process of coping with change and organizational renewal
Fosters anticipation, innovation, and excellence
Facilitates consistent decision-making
Creates organizational focus
Acts as a process of organizational leadership.
Finally and most importantly: To help the organization to succeed (outperform) against its competition!!
Why is SM, as a field of study, necessary?
Why are all these theories/tools needed ?
*
*
Strategy, Survival and Success
The ultimate goal of the organizations is to be successful – success is:
Survival (long-term success)
Achievement of Goals
Above average returns/Profitability (probably most important, because it determines the ability to achieve the above two)
Strategy can help achieve success, but it doesn’t guarantee it—certain features of strategy directly contribute to success:
Goals that are simple, consistent, and long-term.
Profound understanding of the competitive environment.
Objective appraisal of resources.
Effective implementation.
*
*
Competition provides the rationale for strategy – without competition, strategy is of no concern.
The essence of strategy is the interdependence of competitors—or the establishment of sustainable competitive advantage over rivals.
*
*
1. Where are we now? What is our situation?
2. Where do we want to go?
Business(es) we want to be in and market positions we want to stake out
Buyer needs and groups we want to serve
Outcomes we want to achieve
3. How will we get there?
*
*
External Environment
Industry Attractiveness
Strategy Formulation
I/O Model
Assets/Skills Assessment
Four Assumptions of the I/O Model
1. The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns.
Most firms competing within a particular industry are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources.
Resources used to implement strategies are highly mobile across firms.
*
Four Assumptions of the I/O Model
Both Crock and Schultz identified the strategy that allowed their companies to achieve
high profits: McDonalds through the “assembly line” of their burgers and Starbucks with
product marketing that created ambiance and consistency, a value perception that allowed
them to charge high premium for their coffee.
*
Our Approach to Studying the Strategic Management Process
Both the I/O and RBV perspectives are useful to managers and essential to understanding the strategic management process.
*
*
life cycle competitive position)
Go Beyond the Current Business Model
Design a “Grand Strategy”
Develop a Compelling Vision
Assure Enablers of Strategy
Design a Monitoring Process
Basic Decision to Make Major Change or Not
Related Issues to Monitor Implementation Process
Strategic Formulation and Implementation
How do we make money?
INDUSTRY
ATTRACTIVENESS
COMPETITIVE ADVANTAGE
