Topic 1: The Concept of Strategy and the Strategic Management Process Business Policy Strategy Formulation Topic 1: The Concept of Strategy and the Strategic Management Process

Lecture Plan What is a strategy? The strategic management process Why strategic management is an ongoing process Who performs the tasks of SM? Benefits of a strategic approach point out that strategic thinking is required not only in large multinational businesses students must develop their own strategic approach to undertaking a degree course even small farmers (my uncle Pats) must make strategic decisions: - invest in bulk milk cooler? - keep or lease milk quota? - stay in dairy cows or move to beef cattle?

What is a strategy? ‘determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals’’ Chandler ‘a commitment to undertake one set of actions rather than another’ Oster Point out that each definition demonstrates a flavour of strategic management Point out that strategy has two distinct meanings: can be viewed by looking at past and inferring, after the fact, a meaning to decisions made can be viewed by looking forward: developing a plan for the future. Both meanings often used interchangeably Definitions also demonstrate this: Chandlers is from design point of view: emphasis on defining and attaining goals Oster is from entrepeneurial point of view: emphasis on energinsing firm through commitment; also emphasises that choice must be made; usually on basis of judgement

What is a Strategy? (2) ‘...the “game plan” management has for positioning the company... entails choice among alternatives and signals organisational commitment to specific markets, competitive approaches, and ways of operating.’ Thomson and Strickland T+S emphasis the notion of patterns ie. inferring strategy from pattern of decisions made; also emphasise attainment of goal: org. performance Christiansen: emphasis here is on internals and externals and the matching between these: competence to opportunity

The strategy pyramid Corporate Influence Business Function Operating Uniting the strategy-making effort through vertical and horizontal linkages. Co-ordination through mutually reinforcing vision, objectives & strategies.

Different Levels of Strategy Corporate - what business? Business - how to compete in each business Functional - in support of business level

The Strategic Management Process Analyze Environment Identify opps / threats Identify current mission, objectives & strategies Formulate Strategies SWOT ANALYSIS Implement Strategies Identify strengths & weaknesses Analyze Resources Evaluate Results ‘Management’, Robbins, S. & Coultar, M. 1996p. 259

Strategy Making - Process or Event? Strategy making is an ongoing process Boundaries between tasks:conceptual not real Managers have many other responsibilities Crafting/ implementing happens erratically Much interplay / recycling among the parts of the SM process Change occurs in an unpredictable way and the implications for strategy may be easy or hard to decipher. Therefore reviewing and adjusting the strategic plan takes an unpredictable amount of management time.

Intended and Adaptive Strategy ‘strategy is a combination of planned actions and on-the-spot adaptive reactions to freshly developing industry and competitive events.’ Respond to external/internal environment Emergent Strategy

Who Performs the five tasks? CEO and other managers Strategic planners Board of directors Some larger companies will have strategic planning depts. eg Eagle Star. These depts help to focus the rest of the organisation on the strategic issues but don’t formulate or implement the strategies. Boundary-spanning - identifying the issues A guiding role.

The Three Strategy Making Tasks Develop a strategic vision/ business mission Set objectives Craft a strategy

‘Chesire Puss’ she (Alice) began ... ‘Would you please tell me which way I ought to go from here’ ‘That depends on where you want to get to,’ said the cat. Lewis Carroll ‘If you don’t know where you’re going, any old road will take you there’. Anonymous

Mission Present Defines the current boundaries Defines the business position -’Who are we?’ - ‘What do we do?’ Mission Present

What Business are you in: Coca Cola soft drinks? Competition is Pepsi, Finches beverages? Competition is tea, coffee, softdrinks thirst -quenching? Competition is water & all liquids! Note: answer to this question changes the way you look at competition: if beverages is answer then you have many more competitors to deal with - and also much more opportunity

Broad / Narrow Business Definition Beverages Fizzy drinks Children’s entertainment Toys for toddlers Furniture Waterbeds Travel River cruises in Egypt

Vision Prepares company for the future Not simply ‘making a profit’ Defines the business position ‘Who are we?’ ‘What do we do? Defines target market Establishes long-term direction ‘Where are we going?’ Not simply ‘making a profit’ Vision A statement that says what the company is trying to do/ become Vision / mission interchangeable Making a profit is not sufficient: all companies aim to make a profit - that alone does not provide sufficient long term direction/ ability to choose between alternatives vision/mission also applies to public, not for profit organisations eg. hospitals, religious orders example: Concern: vision supposedly ‘to help the poorest of the poor’ but not applied; this inhibited people from working together eg. - someone used only local materials, unpaid labour and little equipment - another used much equipment, paid labour and produced far more all this led to inconsistency among workers and customers/ bickering Future Importance of COMMUNICATING the vision

Objectives Strategic vs. Financial? Long range vs. short range? companies that consistently pass up opportunities to strengthen long term position in order to realise short term gains risks diluting its competitveness and getting left behind due to lack of re-investment need both long term and short term short term as stepping stones / building blocks Stretch - objectives should stretch an organisation to achieve its potential - to energise the org and its strategies some people argue that objectives should be so bold and aggressive that people are stretched to the limit but this could lead to undermining of objectives as they are never seen to be realistic Challenging but achievable Measurable

Strategic vs. financial objectives? focus is on competitors eg. becoming the top company in the industry Financial focus is on financial performance eg. acceptable profit margin/ ROI Both are neccessary company must survive in both short and long term

Long vs. Short term? Long term forces Short term encourages early action long term implications considered Short term encourages speedy progress

Challenging but Achievable objectives must be realistic but should stretch funds/ resources must be available to execute the strategy

Measurable Objectives must be measureable Deadlines must be set eg. growth in market share of 5% Deadlines must be set eg. by December next ‘You cannot manage what you cannot measure’

Objectives needed at all levels Parts supporting the whole Top-down objective-setting - cohesion - leadership

Corporate Strategy Builds portfolio of businesses Harnesses synergies between businesses Eg pepsi: cola sold via restaurant chain Makes resourcing/ investment decisions Reviews/ unifies business unit strategies

Business Strategy Aims to strengthen long-term competitive position & build sustainable competitive advantage Build competencies and capabilities Respond to changing circumstances Unify functional strategies

Functional Strategy Support the business strategy Eg. Bank: more automated transactions Defined for a function of the business Eg. IT function ensures 99% up-time for atms by having superior software and backup/ recovery mechanisms

Operational strategy Lower level units of the organisation Specific means and approaches for these units Eg. Software development group trains people in use of GUI/ client-server development

Approaches to performing the strategy making tasks Master strategist: manager is chief architect Delegate to others Collaborative approach Champion approach

Factors that shape strategy External Society political regulatory Industry Attractive- ness Opportunity threat Craft a Strategy Evaluation Choice Company’s strategic situation Strengths weakness Manager values / ambitions Culture Internal

Societal, Political, Regulatory Conditions Limit the strategic actions that a company can or should take May cause company to change strategy anti-smoking lobby (direct mkg/advertising) lead-free petrol (eg Pura) recycling PR pressure Opportunity to make a good impression

Industry Attractiveness Strategy must be matched to industry and competitive conditions eg. technology shift change in cost structure of industry

Market Opportunities and Threats Be open to opportunities Aim at capturing best growth opportunities Defend against threats to well-being and future performance Have the structure that allows people to recognise opportunities and to be flexible enough to take advantage of them

Organisational Strengths and Weaknesses Strategy must be well-matched to the company’s strengths strategy should be grounded in what company is good at doing perilous to depend on what it’s not good at

Manager’s Values, Beliefs and Ambitions Management play a pivotal role Strong leadership builds commitment Management communication - ‘buy-in’

Strategy formulation: deciding what to do what you might do: opportunity what you can do: resources what you’d like to do: values/ ambitions what you ought to do: ethics

Tests for a good strategy Goodness of fit test matches well the company’s situation internal external Competitive advantage test leads to sustainable competitive advantage Performance test leads to superior performance profitability long term business/ market position strength Use Ben and Jerry as example - good fit eg. consumers based purchase decision on flavour; B&J provided a line of exotic flavours, regularly updated - competitive adv: difficult for Hagen Daaz to compete against B&J home-town image without destroying HD’s own sophisticated, urbane image - performance: financial results have consistently been good

Benefits of a Strategic Approach Direction Adaptable / in-tune with environment Basis for budget/resource allocation Unifies decisions across organisation Encourages pro-active management Requires strategic thinking rather than gut-feel/drift