1 THE CONCEPTS OF STRATEGY AND STRATEGIC MANAGEMENT G. Tyge Payne, PhD (1)

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3 Strategic Management - Defined Strategy: The unifying theme that gives coherence and direction to the decisions of an organization (entails choices among alternatives and signals organizational commitments, competitive approaches, and ways of doing business) Strategic Management consists of positioning an organization for competitive advantage, which involves the full set of commitments, decisions, and actions so as to create value and earn returns that are higher than those of competitors.

4 The 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 – 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 –Use of quantitative analysis in planning –The concept of “learning curves” –The concept of “distinctive competence” - first mentioned by Philip Selznick, a sociologist, in a debate about whether or not to combine the military forces into a single unit (i.e., no Army, Navy, Air Force, Marines, just the US Military).

5 In the1950’s, 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: –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. Corporate Strategy, –BCG developed the “experience curve” and portfolio analysis concepts. –McKinsey & Company’s development of SBUs and the nine-block matrix. –Williamson’s (1975) transaction cost economics (internal production versus purchasing decisions) –Jensen & Meckling’s (1976) agency arguments. –Mintzberg’s “Deliberate, Emergent & Realized Strategies” –Porter’s Generic Strategies More Historical Development

6 Ansoff’s Product / Mission Matrix* Market Penetration Market Penetration Product Development Product Development Market Development Market Development Diversification Present Product New Product Present Mission New Mission *Categories define the common thread in an organization’s business/corporate strategy.

7 BCG’s Growth-Share Matrix Star Question Mark Question Mark Cash Cow Cash Cow Dog High Share Low Share High Growth Slow Growth ? Bark!!

8 Deliberate Strategy Forms of Strategy Realized Strategy Intended Strategy Unrealized Strategy Emergent Strategy **Normally emergent strategy comes from learning and dissemination within the organization.

9 Porter’s Generic Strategies Strategy 1 Cost Leadership Strategy 2 Differentiation Strategy 2 Differentiation Strategy 3A Cost Focus Strategy 3A Cost Focus Strategy 3B Differentiation Focus Strategy 3B Differentiation Focus Competitive Advantage Lower Cost Differentiation Competitive Scope Broad Target Narrow Target

10 To proactively shape how a company’s business will be conducted. To mold the independent actions and decisions of managers and employees into a coordinated, company-wide game plan. To help the organization to succeed against its competition!! Key Attributes of Strategic Management: 1.Directs the organization toward overall goals and objectives (i.e., high performance). 2.Involves the inclusion of multiple stakeholders in decision making. 3.Needs to incorporate short-term and long-term perspectives. 4.Recognizes tradeoffs between efficiency and effectiveness. Why is Strategy (and all of these Theories) Needed?

11 Strategy, Survival and Success The ultimate goal of the organizations is to be successful – success is: Survival (long-term success) Achievement of Goals 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: 1.Goals that are simple, consistent, and long-term. 2.Profound understanding of the competitive environment. 3.Objective appraisal of resources. 4.Effective implementation. * These observations concerning the role of strategy can be made in relation to most human endeavors be it warfare, chess, politics, sport or business.

12 Balance Scorecard – Kaplan & Norton, 1996

13 Thinking Strategically: The Three Big Strategic “Analysis” Questions 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?

14 The Strategy Levels of Analysis Where to Compete? How to Compete? How to Contribute?