THE CONCEPT OF STRATEGY AND STRATEGIC MANAGEMENT G. 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. Strategic Management basically seeks to answer the question: How and why do some firms outperform others?

Historical Development of Business Strategy The Influence of Large Companies and Competition. 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.” The Influence of Wartime (WWI and WWII): 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).

More Historical Development 1950s: Strategy was largely introduced in business schools as a way of analyzing the competitive environment and setting organizational goals and objectives to fit that environment. Since then, major developments include: 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

The Evolution of Strategic Management 1950s 1960s-early 70s Mid-70s-mid-80s Late 80s –1990s 2000s Budgetary Corporate Positioning Competitive Strategic planning & planning advantage innovation control Financial Planning Selecting Focusing on Reconciling control growth &- sectors/markets. sources of size with diversification Positioning for competitive flexibility & leadership advantage agility Capital Forecasting. Industry analysis Resources & Cooperative budgeting. Corporate Segmentation capabilities. strategy. Financial planning. Experience curve Shareholder Complexity. planning Synergy Portfolio analysis value. Owning E-commerce. standards. — Knowledge Management— Coordination Corporate Diversification. Restructuring. Alliances & & control by planning depts. Global strategies. Reengineering. networks Budgeting created. Rise of Matrix structures Refocusing. Self -organiz systems corporate Outsourcing. ation & virtual planning organization DOMINANT THEME MAIN ISSUES KEY CONCEPTS& TOOLS MANAGE-MENT IMPLIC- ATIONS

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

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

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

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

Industry Attractiveness Assets/Skills Assessment Differing Perspectives of the Strategic Management Process I/O Model RBV Model External Environment Resources Industry Attractiveness Capability Strategy Formulation Sustainable CA Assets/Skills Assessment Strategy Formulation Implementation Implementation

Strategy, Survival and Success The ultimate goal of the organizations is to be successful – success is GAS: Goal Achievement Above average returns/Profitability (probably most important, because it determines the ability to achieve the above two) Survival (long-term success)

The Balanced Scorecard Vision & Strategy CUSTOMER “To achieve our vision, how should we appear to our customers?” Objectives Measures Targets Initiatives FINANCIAL “To succeed financially, how should we appear to our shareholders?” INTERNAL BUSINESS PROCESSES “To satisfy our shareholders and customers, what business processes must we excel at?” INNOVATION AND LEARNING “To achieve our vision, how will we sustain our ability to change and improve?” Lagging Hard Leading Soft

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?

Formulating Directions - Develop Vision/Mission (1) -Set Objectives (2) Organizational Culture Stakeholder Influence Values / Ethics Opportunities and Threats from Economic, Political, Technological etc Sources Strategic Analyses (3) Strategic Control (6) External Environment Opportunities and Threats from Competition and Key Stakeholders Competitor/Stakeholder Internal Organization Organizational Culture Stakeholder Influence Values / Ethics Strategy Formulation (4) -Formulate and Consider Alternatives -Make Strategy Choice Implementation (5) Context of Strategy (type of organization, culture, values, life cycle competitive position)

Hambrick & Fredrickson, 2001

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