Strategic Management – TMO Basics of Strategic Management - 2. lecture and seminars – Marko Rillo Chair of Organisation and Management

JUHAN JUURIKAS Remembered to Take along Your Name Tag?

How are you doing? Any problems so far with …  Downloading materials for last course?  Web-based forum?  Getting hands on HBR? Homework?  Who has done it properly?  Who has taken the original case study and/or solution along?  3 selected case studies get 5 minutes of presentation time  Audience: please follow and ask at least one question everyone

What were in your opinion 5 biggest headlines on strategic management? To help you, there are some sites that you may follow: In the world?  - free  - fully available in EBSCO database  - pay service, you may look few selected texts  - free  - free In Estonia?  - short summary of news only  - only headlines

Introduction to Strategic Management

Group discussion questions: How would you define …  Strategy?  Tactics?  Organisation?  Management?  Strategic management? How would you see the role of a strategic manager ? I.e. what does a good strategic thinker/actor in any organisation have to do? What would be the actual actions that are carried out when organisation plans, implements and analyses its strategies?

Brief History of Strategic Management Strategy’s Military Roots  Battlefield strategies to gain an edge on the enemy Academic Origins of Strategic Management  Mainstream economic theory  Scientific management (Taylor)  Bureaucratic organizations (Weber)  Administrative functions/open systems (Barnard) The 1960s  Strategic management established as separate field The 1970s and 1980s  Process researchers (“how” strategy is formed)  Content researchers (“what” of a strategic decision)

History of Strategic Planning and Thinking  Military Strategy: 4000 B.C.  The Harvard School 1962 (Bain)  Strategic Planning 1966 (Learned, Anderson, Bain)  Structure-Conduct-Performance (SCP) 1968 (Learned, Anderson, Bain)  Porter First Publishes Work on Industry and Firm Analysis (1975, 1980)  Porter Continues to Publish (1985) and continues(1990) and continues … (1998)  Resource-Based View of the Firm Wernerfeldt (1984), Barney (1986)  Complexity Theory, Chaos Theory, and Non-linear Dynamics, other concepts …

Key Concepts Strategy:  Mintzberg: strategy as five P-s: plan, pattern, position, perspective and ploy Strategic management  Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives  Goal-directed decisions and actions in which its capabilities and resources are matched with the opportunities and threats in its environment Strategic plan  Company game plan

What is Strategy? (M. Porter) Strategy is the creation of a unique and valuable position, involving a different set of activities.  Economist’s perspective Strategy requires a firm to make trade-offs in competing.  Not doing is also a strategy! Strategy involves creating “fit” among a company’s activities.  Synergy!

What is Strategy? (cont) Strategy as revolution  Hamel (1996) Strategy as a pattern  Mintzberg and Waters (1985) Strategy as creativity  Stacey (1996) Strategy as ecological adaptation  De Geus (1997) Many companies don’t have strategies  Strategy as hindsight?

What is Strategy? (cont) The essence of strategy is choosing to perform activities differently than rivals do Where is our strategic plan?  Does it leave room for slack? Art of balancing between short-term and long-term perspectives Strategy as an interface between external and internal environment

Game Theory Player A A’s Strategy 1 A’s Strategy 2 B’s Strategy 1B’s Strategy 2 Player B 1 2 A’s payoff when A takes Strategy 1 B’s payoff when B takes Strategy 1

Love Game John Movie Basketball MovieBasketball Mary

Prisoner’s Dilemma B Confession Silence ConfessionSilence A

Gaming Business (cont.) Company A Company B Large Small Large (1, 1 ) Situation D (3, 2 ) Situation C (2, 4 ) Situation A (4, 3 ) Situation B Company A’s Payoff Company B’s Payoff

10 Schools of Management (Mintzberg) 1.Design 2.Planning 3.Positioning 4.Entrepreneurial 5.Cognitive 6.Learning 7.Power 8.Cultural 9.Environmental 10.Configuration

Lets Get to Business! Introduction to Strategy Process

Strategy Process Analysis Strategy Formulation Strategy Implementation Strategy Evaluation

Strategic Analysis First stage in strategic management, equal to ‘thinking’ What is organisational context External analysis Internal analysis

Strategy formulation - traditional components Vision & Mission Strategy Formulation External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection

Key Issues in Strategy Formulation Observation of businesses, looking options and making decisions: New Business opportunities Businesses to abandon Allocation of resources Expansion or diversification or focusing International markets Mergers or joint ventures Avoidance of hostile takeover

Traditional Steps in Strategy Implementation Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation

Key Issues in Strategy Implementation “Action Stage of Strategic Management” Most difficult stage Mobilization of employees & managers Interpersonal skills critical Consensus on goal pursuit

Traditional Steps in Strategy Evaluation Strategy Evaluation Internal Review External Review Performance Metrics Corrective Actions

Key Issues in Strategy Evaluation “Review Stage of Strategic Management” Subject to future modification Today’s success no guarantee of future success New & different problems Complacency leads to demise

Basic Tools for Strategy Analysis – SWOT and TOWS

SWOT Analysis Opportunities … etc Strengths … etc Threats … etc Weaknesses … etc. Internal Environment External Environment PositiveNegative

TOWS Analysis Weaknesses: Strengths: WO Strategies Use opportunities to overcome weaknesses SO Strategies Use strengths to take advantage of opportunities Opportunities: WT Strategies Defensive strategies to minimize weaknesses and avoid threats ST Strategies Take advantage of strengths to avoid threats Threats: From Internal Analysis From External Analysis Source: Weihrich

Homework for Tuesday, Take the case study uploaded under the course materials and do both SWOT and TOWS analyses for the case company You may do the analysis in groups of 4 people Upload it to course forum before our seminar on Tuesday morning 9.00 – please indicate your group Be prepared to present it on Tuesday morning as a group