STRATEGIC MANAGEMENT The Concept of Organisational Strategy Professor Stefan Markowski E-mail: smarkowski@wsiz.rzeszow.pl WYŻSZA SZKOŁA INFORMATYKI I ZARZĄDZANIA z siedzibą w Rzeszowie

The concept of organisational strategy Definitions Strategy - an overall plan for deploying resources to establish a favourable position for an organisation Tactic - a plan for specific action to take Strategic Management - an application of strategy in activity management Military antecedents of strategic management concepts “What business strategy is all about is, in a word, competitive advantage” Kenichi Ohmae, 1983

The concept of organisational strategy Strategy (and strategic management): gives sense of purpose and coherence to collective decision making reduces uncertainty provides inter-temporal consistency and coordination of objectives and resource use links mission with vision communicates business mission and core values offers room for stretching into more ambitious targets A strategy is a company’s game plan

The concept of organisational strategy intended (ex ante) realised (ex post) emergent (fuzzy) Strategy making planned - intended and design-based behavioural - process-driven (realised through practical interaction between key players) The term strategy derives from the Greek word strategia, meaning ‘generalship’

The concept of organisational strategy Strategic Management to determine: business philosophy and core values field of activity/operating environment vision, mission and objectives capabilities (incl. technologies) resources (human and non-human) organisational structures management and information systems location and timing of activities Successful strategic management must address all these issues holistically

The concept of organisational strategy Strategic management loop involves: the analysis of broader operating environment as well as own capabilities and values the setting of transparent, consistent and transitive objectives the determination of resource requirements and best ways of deploying them risk management and resolution of trade-offs implementation of preferred strategies evaluation of outcomes corrections and improvements

The concept of organisational strategy Strategic Management to produce: company’s vision (future destination) mission statement (purpose, modus operandi, social responsibilities) SWOT analysis (external and internal assessment of strengths, weaknesses, opportunities and threats strategic choices (short list of strategic options) generic strategies (eg, low-cost, volume producer) grand strategy (strategic plan)

The concept of organisational strategy Strategic Management to produce: action plans and functional tactics to operationalise grand strategies company policies to facilitate strategy implementation (eg, HRM policies) organisational design (business process re-engineering) strategic control (tracking a strategy, evaluation, feedback, improvement)

The concept of organisational strategy Characteristics of a strategy Simple, consistent and long term goals Profound understanding of competitive environment Objective appraisal of resources Effective implementation Internal environment Goals and values Resources and capabilities Structure and systems External environment Customer, competitors and suppliers Strategic fit Link between firm and external environment

The concept of organisational strategy The Concept of Strategy Strategic choices Where to compete? How to compete? Levels of strategy Corporate strategy (domain selection)- industry attractiveness Business strategy (domain navigation)- competitive advantage Strategy: Design vs Emergent Intended, Realized & Emergent (Mintzberg, 1979) Planned emergence

The concept of organisational strategy The Concept of Strategy cont Roles of strategy As decision support (constraining range of decisions; acting as heuristics; pooling of knowledge; and use of analytical tools) Coordination device (communication device; consensus development) Target (strategic intent)

The concept of organisational strategy Levels of strategic management Headquarters Corporate strategy (domain selection) What business should we be in? Divisions Competitive strategy (domain scoping to do the right thing) How should we compete? Functional areas Functional strategy (domain navigation to do things right) Who should do what?

The concept of organisational strategy Strategic managers Headquarters CEO and the Company Board Divisions Heads Functional Managers

The concept of organisational strategy Tools for Strategy Analysis Primary sources of value Production Commerce Distribution of firm’s value among various stakeholder Employees (wages and salaries) Lenders (interest) Landlords (rent) Government (taxes) Owners (profits) Economic Profit (economic rent) vs Accounting Profit

The concept of organisational strategy Tools for Strategy Analysis cont. Selecting strategy with highest Net Present Value (NPV) Strategy and Real Options Modeling uncertainty Real options valuation Forward looking performance measure (stock market value) Backward looking performance measure (accounting ratios) Values and social responsibility

The concept of organisational strategy Evolution of strategic management 1950-60s Budgeting and financial management (financial planning and budget control) DCF-based capital budgeting Financial control through operating budget 1960-70s Corporate planning (growth through coordinated operations and planning, volume production) Medium term economic forecasting Formal corporate planning Diversification and quest for synergy Creation of corporate planning departments

The concept of organisational strategy Evolution of strategic management 1970-80s Corporate strategy (growth through mergers and acquisitions, strategy as positioning, quest for competitive advantage) Industry analysis Market segmentation The experience curve PIMS Analysis Planning through portfolios Analysis of resources and capabilities Shareholder value maximization Restructuring and re-engineering Alliances

The concept of organisational strategy 1990s Competitive strategy (focus on core capabilities, product innovation, strategic alliances) Strategic innovation New business models Disruptive technologies Corporate Social Responsibility and business ethics Competing for standards Winner-take-all markets 1990s Global strategy (growth through globalisation and market expansion, process innovation 2000s E-strategy (focus on e-commerce, IT management, Internet, digital marketing, social media and cyber-market operations)

The concept of organisational strategy Readings Grant, chs. 1-2 Pearce& Robinson, ch.1

QUESTIONS FOR GENERAL DISCUSSION If you were the CEO of an industrial firm, what would be the starting point for the development of a long term strategy for the firm: a stock take of the firm’s own resources? evaluation of the relevant value adding chain/web? industry/sectoral analysis? trends in the national/global economy? Select a firm that you are broadly familiar with and describe its core business. How does it create value? Who for?

QUESTIONS FOR GENERAL DISCUSSION What do you understand by: strategic management? strategic analysis? strategic planning? How do form’s strategic objectives differ from its tactical or operational objectives? Explain the concept of organisational strategy and how it could be arrived at.