Chapter 1
Strategic Management: Creating Competitive Advantage
* how the company will provide
the product/service
Reason for Being
MISSION
MISSION
To provide world class State-of-art technology
telecom services to its customers on demand at
competitive prices.
Environmental analysis
Strategic formulation
Strategy implementation
Strategy evaluation
Strategic Management
Strategic management is the study of why
some firms outperform others
How to compete in order to create competitive
advantages in the marketplace
How to create competitive advantages in the
market place
Unique and valuable
Difficult for competitors to copy or substitute
Strategic Management
Analysis
Strategic goals (vision, mission, strategic objectives)
Internal and external environment of the firm
Strategic decisions
What industries should we compete in?
How should we compete in those industries?
Actions
Allocate necessary resources
Design the organization to bring intended strategies to
reality
Mission Statement
Business Definition
Major Goals of the Firm
Philosophies
Guiding Principles
Considerations of stakeholders
1.The vision formulation which leads to
the statement of the Mission
Mission
* what is business?
* what will be the business?
* it established long-term direction
* it needs to use simple terminology
* it needs to be inspirational buy in
* recognition of threats & opportunities
* entrepreneurial spirit
2. The mission is then converted into
performance objectives
* measurable statements
* specified performance
* specified time
* short-range objectives
* long-range objectives
* top-down rather than bottom-up
Strategic Management:
A continuous activity that requires a
constant adjustment of three major
interdependent poles:
the values of senior management,
the environment,
the resources available.
Strategic Management
Strategic Management
Concepts
Definition: Strategic management consists of the analysis,
decisions, and actions an organization undertakes in order to
create and sustain competitive advantages.
Key attributes of strategic management
Directs the organization toward overall goals and objectives.
Business level
functional level
CORPORATE LEVEL
These decisions are tend to be value oriented,
conceptual, and less concrete than those at the
business or functional level of strategy formulation and
implementation. Corporate level decisions are also
characterized by greater risk, cost and profit potential
as well as by longer time horizons and greater needs
for flexibility.
Examples of corporate level decisions include the
choice of business, dividend policies, sources of long
term financing, and priorities for growth.
FUNCTIONAL LEVEL
These functional decisions principally involve action
oriented operational issues. These decisions are made
periodically and lead directly to implementation of
some part of the overall strategy formulated at the
corporate and business levels. There fore functional-
level decisions are relatively short range and involve
low risk and modest costs because they are dependent
on available resources.
Some of examples are high inventory versus low
inventory levels, general versus specific purpose
production equipment.
BUSINESS LEVEL
bridging corporate and functional level decisions are
those made at the business level. Business level
Descriptions of strategic decisions fall between those
two other levels. Business level decisions are less
costly, risky and potentially profitable than corporate
level decisions, but they are more costly, risky and
potentially profitable than functional level decision.
For example of business level decisions involve plant
location,, marketing segmentation and geographic
coverage and distribution channel.
Level of strategy
Characteristics Corporate Business Functional
Type Conceptual Mixed Operational
Measurability Value Semi Usually
judgments quantifiable quantifiable
dominant
Frequency Periodic or Periodic or Periodic
sporadic sporadic
Adaptability Low Medium High
Relation to Innovative Mixed Supplementary
present activities
Risk Wide range Moderate Low
Profit potential Large Medium Small
Cost Major Medium Modest
Time horizon Long-range Medium range Short range
Flexibility High Medium Low
Cooperation Considerable Moderate Little
Dimensions of Strategic
decisions
Strategic issues require top management
decisions-anticipating broader perspective
Strategic issues involve the allocation of
large amounts of company resources-
deployment or commit for longer time
Strategic issues are likely to have a
significant impact on the long term prosperity
of the firm.(5 yrs)
Dimensions of Strategic
decisions
Strategic issues are future oriented
(proactive-anticipatory)
Strategic issues usually have major
multifunctional or multi business
consequences-SBU-customer mix –
competitor-reallocation of resources
Strategic issues necessitate considering
factors in the firm’s external environment-
(largely impacted by E E beyond their control)
Corporate level Strategy
Tend to be value oriented, conceptual and
less concrete than functional & business
level strategy.
CLS are also characterized by greater risk,
cost, and profit potential as well as long
time horizon
Ex-choice of business, dividend policies,
sources of LT financing and priorities of
growth.
Business level Strategy
WHAT BUSINESS ARE WE IN?
Corporate Strategy:
Differentiation strategy:
Distinguishing products from competitors by providing
distinctive levels of service or quality - the customer is
prepared to pay a premium price.
The set of decisions and actions that result in
the formulation and implementation of plans
designed to achieve a company’s objectives.
Characteristics of Strategic
Management
Characteristic Level of Strategy
Corporate Business Functional
Type Conceptual Mixed Operational
Definition
• Degree to which participants, responsibilities, authority, and
discretion in decision making are specified (entrepreneurial)
Forces affecting degree of formality
• Size of organization
• Predominant management styles
• Complexity of environment
• Production process
• Problems
• Purpose of planning system
• Large-scale, future-oriented plan for
interacting with the competitive environment
to achieve objectives
• Company’s “game plan”
• Framework for managerial decisions
Benefits of Strategic
Management
Enhances the firm’s ability to prevent problems
Emphasizes group-based strategic decisions likely
to be based on best available alternatives
Improves employees’ understanding of the
productivity-reward relationship
Reduces gaps/overlaps in activities among
employees as their participation clarifies differences
in roles
Resistance to change is reduced
Risks of Strategic Management
Company Mission
• Specifies unique purpose of company
• Identifies scope of operations
• Describes product, market, and technological
areas of emphasis
• Reflects values and priorities of decision makers
• Expresses approach to social responsibility efforts
Internal Analysis
• Depicts quantity and quality of company’s
financial, human, and physical resources
• Assesses company’s strengths and weaknesses
• Contrasts past successes and concerns with
current capabilities to identify future capabilities
External Environment
• Consists of all conditions and forces affecting
firm’s strategic options and define its competitive
situation
• Includes three interactive segments – remote,
industry, and operating environments
Strategic Analysis and Choice
• Involves simultaneous assessment of external
environment and company profile
• Incorporates screening process based on mission
to generate possible and desired opportunities
• Results in selection of options from which a
strategic choice is made
Long-term Objectives
Profitability
Return on investment
Competitive position
Technological leadership
Productivity
Employee relations
Public responsibility
Employee development
Generic Strategies
• Low cost
• Differentiation
• Focus
Grand Strategies
• Comprehensive, general plan of major actions
through which the firm intends to achieve its long-
term objectives in a dynamic environment
Action Plans and Short-Term Objectives
• Translate generic and grand strategies into
“action”
Identify specific functional tactics to be taken in the near
term
Establish a clear time frame for completion
Creates accountability
Specify one or more immediate objectives as outcomes
of the action
Functional Tactics
• Involve identifying activities unique to the function to help
build competitive advantage
• Specify detailed statements of “means” to be used to
achieve short-term objectives
Policies that Empower Action
• Include broad, precedent-setting decisions that substitute
for repetitive or time-sensitive decision making
• Often increase managerial effectiveness by empowering
discretion of subordinates in implementing strategies
Restructuring, Reengineering, and
Refocusing the Organization
• Involves an internal focus – getting work done
efficiently and effectively to make the strategy
work
• Downsizing, restructuring and reengineering
reflect the critical stage in strategy implementation
wherein managers attempt to recast their
organization.
Strategic Control and Continuous
Improvement
• Control
Tracks a strategy during implementation
Detects problems
Involves making necessary adjustments
• Continuous improvement
Provides another approach to strategic control
Allows an organization to respond more proactively and
timely to rapid developments
Strategic Analysis
Starting point in the
strategic management
process
Precedes effective
formulation and
implementation of
strategies
Strategic Analysis (cont.)
Clear goals and
objectives permit
effective allocation of
resources
Hierarchy of goals
Vision
Mission
Strategic objectives
Strategic Analysis (cont.)
Managers
Scan the environment
Analyze competitors
General environment
Industry environment
Strategic Analysis (cont.)
Frameworks for
analyzing a firm’s internal
environment
Strengths
Weaknesses
Analyzing strengths can
uncover potential sources
of competitive advantage
Strategic Analysis (cont.)
Intellectual assets are
drivers of
Competitive advantages
Wealth creation
Networks and
relationships among
Employees
Customers
Suppliers
Alliance partners
Strategic Formulation
Successful firms develop
bases for competitive
advantage
Cost leadership
Differentiation
Focusing on narrow or
industry-wide market
segments
Sustainability
Industry life cycle
Strategic Formulation (cont.)
Firm’s portfolio or group
of businesses
What business(es) should
we be in?
How can we create
synergies among the
businesses?
Diversification
Related
Unrelated
Strategic Formulation (cont.)
Appropriate entry
strategies
Sustain competitive
advantage in global
markets
Strategic Formulation (cont.)
Digital technologies
change the way business
is conducted
Added value
Impact on performance
Digital technologies can
enhance
Cost leadership
Differentiation
Strategic Implementation
Informational control
Monitor and scan the
environment
Respond effectively to
threats and opportunities
Behavioral control
Effective corporate
governance
Interests of managers and
owners of the firm
Strategic Implementation
(cont.)
Organizational structure
and design
Organizational
boundaries
Flexible
Permeable
Strategic Alliances
Strategic Implementation
(cont.)
Develop organization that
is committed to
Excellence
Ethical behavior
Learning organization
responsive to
Rapid and unpredictable
change in today’s
competitive environments
Strategic Implementation
(cont.)
Corporate
entrepreneurship and
innovation
New opportunities
Enhance innovative
capacity
Autonomous
entrepreneurial behavior
Product champions
Strategic Implementation
(cont.)
New ventures and small
businesses
Major engine of economic
growth
Recognize viable
opportunities
Entrepreneurial leadership
skills
Corporate Governance and
Stakeholder Management
to issues of
Duty and “right” vs. “wrong”
Ethical and moral standards address
“What is the right thing to do?”
Two criteria of an ethical strategy:
Does not entail actions and behaviors that cross the line
from “can do” to “should not do’ and “unsavory” or
“shady” and
Allows management to fulfill its ethical duties to all
stakeholders
A Firm’s Ethical Responsibilities
to Its Stakeholders
Owners/shareholders – Rightfully expect some form of
return on their investment
Aspiration