Strategic Choice
Strategic Choice
Selection of the Best Strategy –
Ability of the proposed strategy to deal with strategic factors developed earlier in SWOT analysis.
Ability of each alternative to satisfy agreed-on objectives with the least resources and the fewest negative side affects.
Strategic choice
Strategic choice is evaluation of alternative strategies and selection of the best alternative.
The best strategic decisions are not arrived at through consensus. They actually involve a certain amount of heated disagreement and even conflict.
Process of Strategic Choice
Key Issues: Key Issues: Strategic ChoiceStrategic Choice in Single Businessesin Single Businesses
1. What strategies are most effective at building sustainable competitive advantages for single business units?
2. Should dominant-product/service businesses diversify to build value and competitive advantage? What grand strategies are most appropriate?
6Prominent Sources of Prominent Sources of Competitive Advantage Competitive Advantage ((Porter’s 3 Generic Strategies)
Cost leadership
Differentiation
Speed
Market focus
Sources of competitive advantage
7
Evaluating A Business’s Cost Evaluating A Business’s Cost Leadership OpportunitiesLeadership Opportunities
A. Skills and Resources Fostering Cost Leadership• Sustained capital investment and access to capital• Process engineering skills• Intense supervision of labor or core technical operations• Products or services designed for ease of manufacture or
delivery• Low-cost distribution system
B. Organizational Requirements Supporting Cost Leadership• Tight cost control• Frequent, detailed control reports• Continuous improvement and benchmarking orientation• Structured organization and responsibilities• Incentives based on meeting strict, usually quantitative targets
8Evaluating A Business’s Evaluating A Business’s Cost LeadershipCost Leadership Opportunities Opportunities ----C. Examples of Ways Businesses Achieve Competitive C. Examples of Ways Businesses Achieve Competitive AdvantageAdvantage
Technology development
Process innovations lowering production costs
Product redesign to reduce number of components
Global, online suppliers provide automatic restocking of orders based on sales
Inbound logistics Operations Outbound logistics Marketing & sales
Serv
iceEconomy of
scale in plant reduces equipment costs and depreciation
Computerized routing lowers transportation expense
Cooperative advertising with distributors creates local cost advantage in buying media space and time
Subcontractedservicetechniciansrepairproductcorrectlyfirst timeor bearcosts
Reduced levels of management cuts corporate overhead
Computerized, integrated information system reduces errors and costs
Safety training for all employees reduces absenteeism, downtime, and accidents
Human resource
management
General administration
Favorable long-term contracts; captive suppliers or key customer for supplier Procurement
margin
Profit
9
Advantages of a Cost Leadership Advantages of a Cost Leadership StrategyStrategy
Low-cost advantages reduce likelihood of pricing pressure from buyers
Low-cost advantages reduce likelihood of pricing pressure from buyers
Sustained low-cost advantages may push rivals into other areas, lessening price competition
Sustained low-cost advantages may push rivals into other areas, lessening price competition
New entrants must face an entrenched cost leader without experience to replicate cost advantages
New entrants must face an entrenched cost leader without experience to replicate cost advantages
Low-cost advantages should lessen attractiveness of substitutes
Low-cost advantages should lessen attractiveness of substitutes
Higher margins allow low-cost producers to withstand supplier cost increases
Higher margins allow low-cost producers to withstand supplier cost increases
10
Key Risks of Cost LeadershipKey Risks of Cost Leadership
Many cost-saving activities are easily duplicated Many cost-saving activities are easily duplicated
Exclusive cost leadership can become a trapExclusive cost leadership can become a trap
Obsessive cost cutting can shrink other competitive advantages involving key product attributes
Obsessive cost cutting can shrink other competitive advantages involving key product attributes
Cost differences often decline over timeCost differences often decline over time
11
Evaluating A Business’s Evaluating A Business’s Differentiation OpportunitiesDifferentiation Opportunities
A. Skills and Resources Fostering Differentiation• Strong marketing abilities• Product engineering• Creative talent and flair• Strong capabilities in basic research• Corporate reputation for quality or technological leadership• Long tradition in an industry or unique combination of skills• Strong cooperation from channels and suppliers of major components
B. Organizational Requirements Supporting Differentiation• Strong coordination among functions in R&D, product development, and
marketing• Subjective measurement and incentives instead of quantitative measures• Amenities to attract highly skilled labor, scientists, and creative people• Tradition of closeness to key customers• Some personnel skilled in sales and operations - technical and marketing
12Evaluating A Business’s Differentiation Evaluating A Business’s Differentiation Opportunities --Opportunities --C. Examples of Ways Businesses Achieve Competitive C. Examples of Ways Businesses Achieve Competitive AdvantageAdvantage
Technology development
Cutting edge production technology and product features to maintain a distinct image and actual product
Purchase superior quality, well-known components, raising quality and image of final products
Inbound logistics Operations Outbound logistics Marketing & sales
Serv
ice
Careful inspection of products at each step in production to improve performance and lower defect rates
JIT coordination with buyers; use of own or captive transportation service to ensure timeliness
Expensive, informative advertising and promotion to build brand image
Allowing servicepersonnelconsiderablediscretion tocreditcustomersforrepairs
Comprehensive, personalized database to build knowledge of customers to be used in customizing how products are sold, serviced, and replaced
Programs to ensure technical competence of sales staff and marketing orientation of service personnel
Human resource
management
General administration
Quality control presence at key supplier facilities; work with suppliers’ new product development activities Procurement
margin
Profit
13
Advantages of a Differentiation Advantages of a Differentiation StrategyStrategy
Rivalry is reduced when a business successful differentiates itself
Rivalry is reduced when a business successful differentiates itself
Buyers are less sensitive to prices for effectively differentiated products
Buyers are less sensitive to prices for effectively differentiated products
Brand loyalty is hard for new entrants to overcome
Brand loyalty is hard for new entrants to overcome
14
Key Risks of DifferentiationKey Risks of Differentiation
Imitation narrows perceived differentiation, rendering differentiation meaningless
Imitation narrows perceived differentiation, rendering differentiation meaningless
Technological changes that nullify past investments or learning
Technological changes that nullify past investments or learning
Cost difference between low-cost competitors and the differentiated business becomes too great for differentiation to hold brand loyalty
Cost difference between low-cost competitors and the differentiated business becomes too great for differentiation to hold brand loyalty
15
Creating a Competitive Creating a Competitive Advantage Based on SpeedAdvantage Based on Speed
Has become a major source of competitive advantage for many firms
Involves the availability of a rapid response to customers by Providing current products quicker
Accelerating new product development or improvement
Quickly adjusting production processes
Making decisions quickly
16Evaluating A Business’s Evaluating A Business’s Rapid Response Rapid Response OpportunitiesOpportunities
A. Skills and Resources Fostering Speed• Process engineering skills• Excellent inbound and outbound logistics• Technical people in sales and customer service• High levels of automation• Corporate reputation for quality or technical leadership• Flexible manufacturing capabilities• Strong downstream partners• Strong cooperation from suppliers of major components
B. Organizational Requirements Supporting Rapid Response• Strong coordination among functions in R&D, product development, and
marketing• Major emphasis on customer satisfaction in incentive programs• Strong delegation to operating personnel• Tradition of closeness to key customers• Some personnel skilled in sales and operations - technical and marketing• Empowered customer service personnel
17Evaluating A Business’s Evaluating A Business’s Rapid ResponseRapid Response Opportunities --Opportunities --C. Examples of Ways Businesses Achieve Competitive C. Examples of Ways Businesses Achieve Competitive AdvantageAdvantage
Technology development
Use of companywide technology sharing activities and autonomous product development teams to speed new product development
Working very closely with suppliers to include their choice of warehouse location to minimize delivery time
Inbound logistics Operations Outbound logistics Marketing & sales
Serv
iceStandardize
dies, components, and production equipment to allow quick changeover to new or special orders
JIT delivery plus partnering with express mail services to ensure very rapid delivery
Use of laptops linked directly to operations to speed the order process and shorten the sales cycle
Locate servicetechniciansat customerfacilities thataregeograph-icallyclose
Highly automated and integrated information processing system; include major buyers in the systems on a real-time basis
Develop self-managed work teams and decision making at lowest levels to increase responsiveness
Human resource
management
General administration
Pre-approved, online suppliers integrated into productionProcurement
margin
Profit
18
Advantages of a Speed-Based Advantages of a Speed-Based StrategyStrategy
Creates a way to lessen rivalry because firm has the availability of something a rival may not
Creates a way to lessen rivalry because firm has the availability of something a rival may not
Allows firm to charge buyers more, engender loyalty, or enhance its’ position relative to its buyers
Allows firm to charge buyers more, engender loyalty, or enhance its’ position relative to its buyers
Generates cooperation and concessions from suppliers since they benefit from increased revenues
Generates cooperation and concessions from suppliers since they benefit from increased revenues
Substitutes and new entrants are trying to keep up with the rapid changes rather than introducing them
Substitutes and new entrants are trying to keep up with the rapid changes rather than introducing them
19
Key Risks of a Speed-Based Key Risks of a Speed-Based Strategy Strategy
Speeding up activities that have not been conducted in a fashion prioritizing rapid response should only be done after attention to training, reorganization, and/or reengineering
Speeding up activities that have not been conducted in a fashion prioritizing rapid response should only be done after attention to training, reorganization, and/or reengineering
Some industries - stable, mature ones - may not offer much advantage to a firm introducing some forms of rapid response
Some industries - stable, mature ones - may not offer much advantage to a firm introducing some forms of rapid response
Service Blueprinting
It is a picture or a map that accurately portrays the service system so that different people involved in providing it can understand and deal with it objectively regardless of their roles from their individual point of view.
Service Blueprinting
It is a tool for simultaneously depicting the service process, the points of customer contacts, and the evidence of service from the point of view of the customer.
PROCESS
CONTACT PTS.
EVIDENCE
SERVICE BLUEPRINT
Service Blueprint of Luxury Hotel
4-22
23
Industry Environments and Industry Environments and Strategy ChoicesStrategy ChoicesEmerging IndustriesGrowth IndustriesMature IndustriesDeclining IndustriesFragmented IndustriesGlobal Industries
24
Strategic Options for Emerging Strategic Options for Emerging IndustriesIndustries1. Ability to shape industry’s structure 1. Ability to shape industry’s structure
2. Ability to rapidly improve product quality 2. Ability to rapidly improve product quality
3. Establish favorable relations with key suppliers 3. Establish favorable relations with key suppliers
4. Ability to establish technology as dominant force 4. Ability to establish technology as dominant force
5. Acquire a core group of loyal customers 5. Acquire a core group of loyal customers
6. Ability to forecast future competitors 6. Ability to forecast future competitors
25
Strategic Options for Strategic Options for Maturing IndustriesMaturing Industries
1. Prune the product line1. Prune the product line
2. Emphasize process innovation2. Emphasize process innovation
3. Emphasize cost reductions3. Emphasize cost reductions
4. Focus on selecting loyal buyers4. Focus on selecting loyal buyers
5. Pursue horizontal integration5. Pursue horizontal integration
6. Expand internationally6. Expand internationally
26
Strategic Options for Strategic Options for Mature/Declining IndustriesMature/Declining Industries
1. Focus on key market segments offering growth opportunities
1. Focus on key market segments offering growth opportunities
2. Emphasize product innovation and quality improvement
2. Emphasize product innovation and quality improvement
3. Emphasize production and distribution efficiency
3. Emphasize production and distribution efficiency
4. Gradually harvest the business4. Gradually harvest the business
27
Strategic Options for Fragmented Strategic Options for Fragmented IndustriesIndustries1. Tightly managed decentralization - Intense local
coordination, high personal service, local autonomy
1. Tightly managed decentralization - Intense local coordination, high personal service, local autonomy
2. Formula facilities - Standardized, efficient, low-cost facilities at multiple locations
2. Formula facilities - Standardized, efficient, low-cost facilities at multiple locations
3. Increased value added - Difficult to differentiate products/services
3. Increased value added - Difficult to differentiate products/services
4. Specialization - Product type, customer type, type of order, geographic areas
4. Specialization - Product type, customer type, type of order, geographic areas
5. Bare bones/no frills - Intense low margin competition (low overhead, minimum wages, tight cost controls)
5. Bare bones/no frills - Intense low margin competition (low overhead, minimum wages, tight cost controls)
28
Characteristics of Global Characteristics of Global IndustriesIndustries Differences in prices and costs among
countries due to Currency exchange fluctuations Differences in wage and inflation rates Other economic factors
Differences in buyer needs across countries Differences in competitors and ways of
competing among countries Differences in trade rules and governmental
regulations across countries
29
Strategic Options: Pursuing Global Market Strategic Options: Pursuing Global Market
CoverageCoverage
1. License foreign firms to produce and distribute a firm’s products
1. License foreign firms to produce and distribute a firm’s products
2. Maintain a domestic production base and export products
2. Maintain a domestic production base and export products
3. Establish foreign-based plants and distribution in foreign countries
3. Establish foreign-based plants and distribution in foreign countries
30
Strategic Options: Choosing a Generic Competitive Strategic Options: Choosing a Generic Competitive
StrategyStrategy
1. Broad-line global competition 1. Broad-line global competition
2. Global focus strategy 2. Global focus strategy
3. National focus strategy 3. National focus strategy
4. Protected niche strategy 4. Protected niche strategy
31
Grand Strategy Selection MatrixGrand Strategy Selection MatrixOvercome weaknesses
Maximize strengths
External (acquisition
or merger for resource
capability)
Internal (redirected resources within the
firm)
Turnaround or retrenchmentDivestitureLiquidation
Vertical integrationConglomerate diversification
Concentrated growthMarket developmentProduct developmentInnovation
Horizontal integrationConcentric diversificationJoint venture
IIIIVIII
32
Model of Grand Strategy Model of Grand Strategy ClustersClustersRapid market growth
Slow market growth
Weak competitive
position
Strong competitive
position
1. Concentrated growth
2. Vertical integration3. Concentric
diversification
1. Reformulation of concentrated growth
2. Horizontal integration3. Divestiture4. Liquidation
1. Concentric diversification
2. Conglomerate diversification
3. Joint venture
1. Turnaround or retrenchment2. Concentric diversification3. Conglomerate diversification4. Divestiture5. Liquidation
IIIIIIIV
33Conclusion: Selecting a Business Conclusion: Selecting a Business Strategy toStrategy toAchieve a Competitive AdvantageAchieve a Competitive Advantage
Focusing on key sources of competitive advantage requiring
total, consistent commitment
Weighing skills, resources, organizational requirements, and
risks of each source of competitive advantage
Considering unique effects of the generic industry environment on a
firm’s value chain activities
Selection of appropriate business strategie(s) involves
Chapter 4Strategy Implementation
Inter relationship between strategy formulation and implementation Some says it is one and same Some says it is distinctive The others says it is inter-related Successful strategy formulation does not guarantee
successful strategy implementation Strategy formulation is similar for different types
of organizations but strategy formulation varies among different types & sizes of organizations
Strategy formulation affects an organization from top to bottom; it affects all the functional and divisional areas of an organization
Strategic formulation
It is largely an intellectual process and where as strategic implementation is more operational character (Fred David)
Strategic formulation requires good conceptual, integrative and analytical skills but strategy implementation requires special skills in motivating and managing others.
Strategy formulation occurs primarily at corporate level of an organisation while strategy implementation is permeates all hierarchical levels.
Both are interdependent
Formulation positions forces before the action Implementation manages forces during the action
Formulation focuses on effectiveness Implementation focuses on efficiency
Formulation is primarily an intellectual process Implementation is primarily an operational process
Formulation requires good intuitive and analytical skills Implementation requires special motivational and leadership skills
Formulation requires coordination among a few individuals=> Implementation requires coordination among many individuals
Nature of Strategy ImplementationFormulation vs. Implementation
Altering sales territories Adding new departments Closing facilities Hiring new employees Cost-control procedures Modifying advertising strategies Building new facilities
Nature of Strategy Implementation
Examples of implementation activities
Shift in responsibility
Nature of Strategy Implementation
Management Perspectives
Division or FunctionalManagers
Strategists
A TALE OF TWO STORES
1891
1970
1990 2005 1924
Sears launches catalog business
Takes control of production and distribution
Moves into on-premise retailing/General Robert Wood takes over
1960
Rapid growth, driven by end-based locations and company-controlled factories
Experts believe Sears way was the only way to compete “The paragon of retailers”
2000 1980
Expands into banking, investments, real estate services, and insurance
Financial trouble; sells off all non-retail businesses
Acquired by KMart
1970
Sam Walton opens first Wal-Mart with focus on low-prices
30 stores located in “one-horse towns which everybody else was ignoring”; Sam Walton
1962 2000 1980
Dizzying growth
Invests $500 million in inventory management technology
Perfects model; grows; expands into new markets (international) and store concepts (Sam’s clubs)
A Firm’s performance is directly related to the quality of its strategy and its competency in implementing it
Strategy Implementation
• Sears exampleSears example
In 1983 Sears implements one-stop shopping banking-In 1983 Sears implements one-stop shopping banking-financialfinancial services power. services power.
Sears retail unit fell to #3 behind low-cost providers (Walmart Sears retail unit fell to #3 behind low-cost providers (Walmart and K-Mart).and K-Mart).
Specialty retailers (focused differentiators) such as The Gap, Specialty retailers (focused differentiators) such as The Gap, The Limited, Toys-R-Us, and Kids-R-Us took market share. The Limited, Toys-R-Us, and Kids-R-Us took market share.
Sears was outperformed by both low-cost and focused differentiators.Sears was outperformed by both low-cost and focused differentiators.
Sears initiated restructuring in 1992 after losing $3.8 billion.Sears initiated restructuring in 1992 after losing $3.8 billion.
Strategy Implementation
• Sears exampleSears example
What happened? Why did Sears fail so dramatically?What happened? Why did Sears fail so dramatically?
- Lost ability to control core business (too diversified).- Lost ability to control core business (too diversified).
- Resources were taken from retail and given to new ventures.- Resources were taken from retail and given to new ventures.
- Managers spent too much time on diversified businesses.- Managers spent too much time on diversified businesses.
- Managed retail segment using financial controls.- Managed retail segment using financial controls.
- Sears suffered from post-merger drift.- Sears suffered from post-merger drift.
- Lost operational understanding of the competitive dynamics Lost operational understanding of the competitive dynamics in the retail industry.in the retail industry.
TWO RETAILERS AT A GLANCE
Sears Wal-Mart
Year founded 1891 1962
Stores 1980• Stores 2004
864• 2026
600• 5289
Revenues 1980• Revenues 2004
$25,194 million• $36,100 million
$1,643 million• $285,222 million
Net profits 1980• Net profits 2004
606M (2.4% return on sales)• 507M (-1.4% return on sales)
$55 M(3.3% return on sales)• $10,267 M • (3.6% return on sales)
Market capitalization 1980• Market capitalization 2004
USD 4.8 billion USD 12.2 billion
USD 1 billion USD 200.2 billion
A TALE OF TWO RETAILERS – PERFORMANCE MEASURES
USD millions
THREE OVERARCHING THEMES
Implementing a good strategy is at least as important as creating one, yet many managers give too little thought to implementation
Strategic leadership is responsible for
making substantive resource allocation decisions and
developing key-stakeholder support of the strategy
We need to see a firm’s competitive position, not as a snapshot, but as an ongoing movie
Firms and industries are
dynamic in nature
To succeed,the formulation
of a good strategy and its implementa-
tion should be inextricably connected
Strategic leader-ship is essential if a firm is able to both formulate
and imple-ment strategies that create
value
STRATEGY
General
Lower officer (e.g., supply logistics infantry, heavy
armored vehicles)
Strategos: “the general’s view”
Holistic “big picture”
Tactical details
THE STRATEGIC MANAGEMENT PROCESS
Strategic analyses Internal
External
Vision and mission
Fundamental organizational purpose
Organizational values
Strategy
Arenas Vehicles Differentiators Staging Economic logic
The central, integrated, externally oriented concept of
how a firm will achieve its objectives
Implementation levers
and
Strategic leadership
QUESTIONS OF CORPORATE-LEVEL AND BUSINESS-LEVEL STRATEGY
Unit of measure
??
Corporate-level strategy should ask
In which markets do we compete today?
In which markets do we want to compete tomorrow?
How does our ownership of a business ensure its competitiveness today and in the future?
How do we compete in this market today?
How will we compete in this market in the future?
Business-level strategy should ask`
STRATEGY AND IMPLEMENTATION ITERATE
WAL-MART EXAMPLE
Strategy:
The process of deciding what to do
Implementation:
The process of performing all the activities necessary to do what has been planned
Compete as discount retailer in rural markets
Leverage inventory and sourcing systems to be low-cost leader
Invest heavily in organizational structure, systems, and processes
UNPLANNED ACTIONS CAN DRIVE STRATEGY
Intel’s original focus (1970s & 1980s)
Design and manufacture of Dynamic, Random-Access Memory Chips (DRAM)
Unplanned experimental venture to make microprocessors for Busicom, a Japanese calculator maker
Focus on micro-processor segment
By 1984, 95%of Intel revenue came from the microprocessor segment
BUSINESS STRATEGY DIAMOND
Staging
Differentiators
Economic logic
Vehicles
Arenas
What will be our speed and sequence of moves? Speed of expansion? Sequence of initiatives
Staging
How will returns be obtained? Lowest costs through
scale advantages? Lowest costs through
scope and replication advantages
Premium prices due to unmatchable service?
Premium prices due to proprietary product features?
Economic logic
How will we get there? Internal development? Joint ventures? Licensing/franchising? Experimentation? Acquisitions?
Vehicles
How will we win? Image? Customization? Price? Styling? Product reliability? Speed to market?
Differentiators
Where will we be active? ( and with how much emphasis?) Which product categories? Which channels? Which market segments? Which geographic areas? Which core technologies Which value-creation
strategies?
Arenas
JET BLUE STRATEGY
Objective
To “bring
Humanity
back to air travel”
Arenas Arenas
Low fare commercial air carrier Underserved but over-priced US cities
Vehicles Vehicles
Start from scratch and achieve all growth internally (i.e., do not purchase a regional airline)
DifferentiatorsDifferentiators
High level of service compared to low fare competitors (e.g., leather seating, satellite TV)
Strategy Strategy
Grow from one route between two cities to serving 20 cities in just 3 years
Economic logicEconomic logic
Secure cost advantage by being willing and able to perform key tasks differently One type of plan JFK home base Secondary location
GOALS OF STRATEGY IMPLEMENTATION
To make sure strategy formulation is comprehensive and well informed
1
To translate good ideas into actions that can be executed (and sometimes to use execution to generate or identify good ideas)
2
IMPORTANCE OF EXECUTION
“The important decisions, the decisions that really matter, are strategic . . . [But] more important and more difficult is to make effective the course of action decided upon.”
– Peter Drucker
FRAMEWORK FOR STRATEGY IMPLEMENTATION
Intended Strategy
Realized and
Emergent Strategies
Key Factors of Strategy Implementation Implementation levers
Organizational structure
Systems and processes
People and rewards
Strategic leadership Lever- and resource-allocation
decisions
Decision support among stakeholders
IMPLEMENTATION LEVERS
Description
Implementationlevers
Structure is the manner in which responsibilities, tasks, and people are organized. It includes the organization’s authority structure, hierarchy, units, divisions, and coordinating mechanisms
Organizationalstructure
Systems are all the organizational processes and procedures used In daily operations. These include control and incentive systems, resource‑allocation procedures, information systems, budgeting, and distribution
Systems andprocesses
The people and rewards lever points to the importance of using all organization members to implement a strategy. Competitive advantage is generally tied to your human resources. Successful implementation depends on having the right people and then developing and training them in ways that support the firm’s strategy. In addition, rewards – how you pay your people – can accelerate the implementation of your strategy or undermine it
People andrewards
COMPETITIVE ADVANTAGE
Competitive Advantage: a Firm’s ability to create value in a way that its rivals cannot
Key question: how do Firms create sustained above-average returns?
THREE PERSPECTIVES OF COMPETITIVE ADVANTAGE
Dynamic
Suggests that in dynamic, rapidly changing markets, a firm’s current market position is not an accurate prediction of future performance. Instead, we look at the past for clues about how the firm arrived at its current position and to future trends – both internal and external – in an effort to predict the future landscape
Internal
Often called the “resource view”, contends that firms are heterogeneous bundles of resources and capabilities and firms with superior resources and capabilities enjoy competitive advantage over other firms. This advantage makes it relatively easier to achieve consistently higher levels of performance
External
Also called the “positional view”, contends that variations in a firm’s competitive advantage and performance are primarily a function of industry attractiveness. Companies should therefore either (1) position themselves to compete in attractive industries or (2) adopt strategies that will make their current industries more attractive
So…..
Understand what a strategy is and identify the difference between business-level and corporate-level strategy
1
Understand the relationship between strategy formulationand implementation
2
Describe the determinants of competitive advantage3
Recognize the difference between a fundamental and a dynamic competitive advantage
4
Understand why we study strategic management5
Management Issues
ManagementIssues
ResourcesResources
Organizational structureOrganizational structure
RestructuringRestructuring
Rewards/IncentivesRewards/Incentives
Annual ObjectivesAnnual Objectives
PoliciesPolicies
Management Issues: Annual objectives
-- Decentralized activity
-- Directly involve all managers in the organization
Basis for resource allocation
Mechanism for management evaluation
Metric for gauging progress on long-term objectives
Establish priorities (organizational, division, & departmental)
Purpose of Annual Objectives --
Management Issues
Consistency of Annual Objectives --
Across hierarchical levels
Horizontally consistent
Vertically consistent
Management Issues: Annual objectives
Management Issues
Requirements of Annual Objectives: Measurable
Consistent
Reasonable
Challenging
Clear
Understood
Timely
Quantity
Quality
Cost
Time
Be Verifiable
Annual Objectives Should State:
Management Issues: Annual objectives
Management Issues (cont’d)
ManagementIssues
Supportive CultureSupportive Culture
Production/OperationsProduction/Operations
Human ResourcesHuman Resources
Resistance to ChangeResistance to Change
Natural EnvironmentNatural Environment
Management Issues: Structure
Matching Structure with Strategy
Changes in strategy = Changes in structure
Structure dictates how objectives & policies will be established
Structure dictates how resources will be allocated
New administrativeproblems emerge
New strategyIs formulated
Organizationalperformance
declines
Organizational performance
improves
New organizationalstructure is established
Chandler’s Strategy-Structure Relationship
Functional Structure
Divisional Structure
Strategic Business Unit Structure (SBU)
Matrix Structure
Basic Forms of Structure
Management Issues: Structure
Strategy Implementation
Organization StructuresOrganization Structures
• Simple StructureSimple Structure
PresidentPresident
EmployeesEmployees
Owner-manager makes decisions.Owner-manager makes decisions. Little specialization of tasks.Little specialization of tasks. Few rules, little formalization.Few rules, little formalization. Advantages:Advantages:
- Provides high flexibilityProvides high flexibility- Rapid product introductionRapid product introduction- Few coordination problemsFew coordination problems
AccountingAccountingLegalLegal
AffairsAffairs
HRMHRM FinanceFinance MarketingMarketing R&DR&D ProductionProduction
PresidentPresident
Organization structureOrganization structure
• Functional structureFunctional structure
Strategy Implementation
Organization structureOrganization structure
• Functional structureFunctional structure
AdvantagesAdvantages
- Centralized control of operationsCentralized control of operations- Promotes in-depth functional expertisePromotes in-depth functional expertise- Enhances operating efficiency where tasks are routineEnhances operating efficiency where tasks are routine
DisadvantagesDisadvantages
- Functional coordination problemsFunctional coordination problems- Inter-functional rivalryInter-functional rivalry- Overspecialization and narrow viewpointsOverspecialization and narrow viewpoints- Hinders development of cross-functional experienceHinders development of cross-functional experience- Slower to respond in turbulent environmentsSlower to respond in turbulent environments
GovernmentGovernmentAffairsAffairs
LegalLegalAffairsAffairs
CorporateCorporateR&D LabR&D Lab
StrategicStrategicPlanningPlanning
CorporateCorporateHumanHuman
ResourcesResources
CorporateCorporateMarketingMarketing
CorporateCorporateFinanceFinance
ProductProductDivisionDivision
ProductProductDivisionDivision
ProductProductDivisionDivision
ProductProductDivisionDivision
ProductProductDivisionDivision
PresidentPresident
Organization structureOrganization structure
• Product-divisional structureProduct-divisional structure
Strategy Implementation
Organization structureOrganization structure
• Product-divisional structureProduct-divisional structure
Organization based on products versus functionsOrganization based on products versus functions
Each division is a separate business in which day-to-day Each division is a separate business in which day-to-day decisions are delegated to divisional managers.decisions are delegated to divisional managers.
Divisions are managed using strategic controls – detailedDivisions are managed using strategic controls – detailed knowledge of firm operations allows managers to remain activelyknowledge of firm operations allows managers to remain actively involved.involved.
Overdiversification leads to inability to process detailed informationOverdiversification leads to inability to process detailed information and a reliance on financial controls to evaluate managers.and a reliance on financial controls to evaluate managers.
Strategy Implementation
Organization structureOrganization structure
• Product-divisional structureProduct-divisional structure
AdvantagesAdvantages
- Decentralized decision making- Decentralized decision making
- Each business is organized around products- Each business is organized around products
- Puts profit/loss accountability on managers- Puts profit/loss accountability on managers
- Facilitates rapid response to environmental changes- Facilitates rapid response to environmental changes
- Allows efficient management of a large number of units- Allows efficient management of a large number of units
DisadvantagesDisadvantages
- May lead to costly duplication of functions- May lead to costly duplication of functions
- Inter-divisional rivalry- Inter-divisional rivalry
- Corporate managers may lose in-depth understanding- Corporate managers may lose in-depth understanding
BusinessBusinessProjectProject
BusinessBusinessProjectProject
BusinessBusinessProjectProject
R&DR&D ProductionProduction MarketingMarketing FinanceFinance
SpecialistsSpecialists
SpecialistsSpecialists
SpecialistsSpecialists
SpecialistsSpecialists
SpecialistsSpecialists
SpecialistsSpecialists SpecialistsSpecialists
SpecialistsSpecialists
SpecialistsSpecialists
SpecialistsSpecialists
SpecialistsSpecialists
SpecialistsSpecialists
PresidentPresident• Matrix StructureMatrix Structure
Strategy Implementation
Organization structureOrganization structure
• Matrix structureMatrix structure
Contains aspects of both functional and product-divisional Contains aspects of both functional and product-divisional structures.structures.
Advantages:Advantages:
- Creates checks and balances between competing viewpoints- Creates checks and balances between competing viewpoints
- Promotes holistic view of the firm- Promotes holistic view of the firm
- Encourages cooperation and consensus building- Encourages cooperation and consensus building
Disadvantages:Disadvantages:
- Very complex and costly- Very complex and costly
- Shared authority increases communication time- Shared authority increases communication time
- Difficult to respond rapidly- Difficult to respond rapidly
- May promote bureaucracy and reduce innovation (in large firms).- May promote bureaucracy and reduce innovation (in large firms).
Strategy Implementation
FocalFocalFirmFirm
PartnerPartner
PartnerPartner
PartnerPartner
PartnerPartner
• Network structureNetwork structure Group of firms combine resources to Group of firms combine resources to achieve together what they can’t achieveachieve together what they can’t achieve alone.alone.
Advantages:Advantages:
- Firm’s emphasize their own core - Firm’s emphasize their own core competenciescompetencies
- Rapid response time- Rapid response time
- Very flexible- Very flexible
- Reduces capital intensity- Reduces capital intensity
DisadvantagesDisadvantages
- Asymmetric information- Asymmetric information
- Technology expropriation- Technology expropriation
- Trustworthiness of partners- Trustworthiness of partners
- Asset hold-up- Asset hold-up
Management Issues
ManagementIssues
ResourcesResources
Organizational structureOrganizational structure
RestructuringRestructuring
Rewards/IncentivesRewards/Incentives
Annual ObjectivesAnnual Objectives
PoliciesPolicies
Management Issues: Restructuring
Restructuring often involves reducing the size of the firm, number of employees, divisions and/or units, and the number of hierarchical levels
Downsizing
Rightsizing
Delayering
Management Issues: Restructuring
Reengineering: Reconfiguring or redesigning work, jobs, and processes to improve cost, quality, service, and speed
Process management
Process innovation
Process redesign
Management Issues
ManagementIssues
ResourcesResources
Organizational structureOrganizational structure
RestructuringRestructuring
Rewards/IncentivesRewards/Incentives
Annual ObjectivesAnnual Objectives
PoliciesPolicies
Management Issues: Pay/performance linkage
Linking Pay/Performance to Strategies involves the question: how can an organization’s reward system be more closely linked to performance?
Dual bonus systems: short-/long-term
Profit sharing systems: direct linkage to profitability
Gain sharing systems: linkage to achievement of targets and/or exceeding them
82
Tests for Performance-Pay Plans
Does the plan capture attention?
Do employees understand the plan?
Is the plan improving communication?
Does the plan pay out when it should?
Is the company or unit performing better?
Management Issues (cont’d)
ManagementIssues
Supportive CultureSupportive Culture
Production/OperationsProduction/Operations
Human ResourcesHuman Resources
Resistance to ChangeResistance to Change
Natural EnvironmentNatural Environment
Management Issues: managing resistance to change
Resistance to change is the single greatest threat to successful strategy implementation
Change raises anxiety or fear concerning:
Economic loss
Inconvenience
Uncertainty
Break in status-quo
Management Issues
Change Strategies
Force Change Strategy
Educative Change Strategy
Rational or Self-Interest Change Strategy
Management Issues: managing resistance to change
Management Issues (cont’d)
ManagementIssues
Supportive CultureSupportive Culture
Production/OperationsProduction/Operations
Human ResourcesHuman Resources
Resistance to ChangeResistance to Change
Natural EnvironmentNatural Environment
Management Issues: Natural environment
-- Wide appreciation for firms that “mend” rather than “harm” the environment
Develop/acquire “green” businesses
Divesting environmental-damaging business
Low-cost producer through waste minimization & energy conservation
Natural Environment – Environmental Strategies:
Management Issues (cont’d)
ManagementIssues
Supportive CultureSupportive Culture
Production/OperationsProduction/Operations
Human ResourcesHuman Resources
Resistance to ChangeResistance to Change
Natural EnvironmentNatural Environment
Management Issues
Strategy-Supportive Culture
Preserve, emphasize, and build upon aspects of existing culture that support new strategies
90
• Formal statements of philosophy, charters, etc. used for recruitment and selection, socialization
• Designing of physical spaces, facades, buildings• Deliberate role modeling, teaching and coaching• Explicit reward and status system, promotion criteria• Stories, legends, myths about key people and events• What leaders pay attention to, measure and control• Leader reactions to critical incidents and crises• How the organization is designed and structured• Organizational systems and procedures• Criteria used for recruitment, selection, promotion, retirement
Management Issues: Supportive culture
Elements linking culture to strategy:
Management Issues (cont’d)
ManagementIssues
Supportive CultureSupportive Culture
Production/OperationsProduction/Operations
Human ResourcesHuman Resources
Resistance to ChangeResistance to Change
Natural EnvironmentNatural Environment
Management Issues: Production/operations concerns
Production processes typically constitute more than 70% of firm’s total assets
Plant size
Inventory/Inventory control
Quality control
Cost control
Technological innovation
Production/Operations Decisions:
Management Issues (cont’d)
ManagementIssues
Supportive CultureSupportive Culture
Production/OperationsProduction/Operations
Human ResourcesHuman Resources
Resistance to ChangeResistance to Change
Natural EnvironmentNatural Environment
Management Issues
Human Resource Concerns
HR manager position has strategic responsibility and has changed dramatically as companies continue to reorganize, outsource, etc.
Management Issues
Human Resource Strategic Responsibilities
Assessing staffing needs/costs
Developing performance incentives
ESOP’s
Child-care policies
Work-life balance issues
Benefits of a Diverse Workforce
Improves corporate culture Improves employee morale Leads to a higher retention of employees Leads to easier recruitment of employees Decreases complaints and litigation Increases creativity Decreases interpersonal conflict Enables the organization to move into emerging markets Improves client relations Increases productivity Improves the bottom line Maximizes brand identity Reduces training costs
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