THE CONCEPT OF STRATEGY AND STRATEGIC MANAGEMENT

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).
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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 Levitts 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 firms 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 & Companys development of SBUs and the nine-block matrix. Mintzbergs Deliberate, Emergent & Realized Strategies Porters Generic Strategies
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The Evolution of Strategic Management

1950s
DOMINANT THEME

1960s-early 70s Corporate planning

Mid-70s-mid-80s Positioning

Late 80s 1990s Competitive advantage

2000s Strategic innovation

Budgetary planning & control

MAIN ISSUES

Financial Planning Selecting Focusing on Reconciling control growth &sectors/markets. sources of size with diversification Positioning for competitive flexibility & leadership advantage agility Capital budgeting. Financial planning Forecasting. Corporate planning. Synergy Industry analysis Segmentation Experience curve Portfolio analysis Resources & Cooperative capabilities. strategy. Shareholder Complexity. value. Owning E-commerce. standards. Knowledge Management Alliances & networks Self -organiz ation & virtual organization 5

KEY CONCEPTS& TOOLS

MANAGEMENT IMPLICATIONS

Coordination & control by Budgeting systems

Corporate planning depts. created. Rise of corporate planning

Diversification. Restructuring. Global strategies. Reengineering. Matrix structures Refocusing. Outsourcing.

Ansoffs Product / Mission Matrix*

Present Product Present Mission Market Penetration New Product Product Development

New Mission

Market Diversification Development

*Categories define the common thread in an organizations business/corporate strategy.

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BCGs Growth-Share Matrix

High Share High Growth Star Low Share Question Mark

Slow Growth

Cash Cow

Bark!!

Dog

In St tend rat ed eg y

Forms of Strategy
Mintzbergs Critique of Formal Strategic Planning: Mintzbergs Critique of Formal Strategic Planning: The fallacy of prediction the future is The fallacy of prediction the future is unknown unknown The fallacy of detachment -- impossible to The fallacy of detachment -- impossible to divorce formulation from implementation divorce formulation from implementation The fallacy of formalization --inhibits flexibility, The fallacy of formalization --inhibits flexibility, spontaneity, intuition and learning. spontaneity, intuition and learning.

De lib era te Str ate gy

Unrealized Strategy

Realized Strategy

Emergent Strategy

**Normally emergent strategy comes from learning and dissemination within the organization.
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Porters Generic Strategies

Competitive Advantage Lower Cost Differentiation
Strategy 1 Strategy 22 Strategy

Broad Target Competitive Scope Narrow Target

Cost Leadership
Strategy 3A Strategy 3A

Differentiation Differentiation

Strategy 3B Strategy 3B

Cost Focus Cost Focus

Differentiation Differentiation Focus Focus

Differing Perspectives of the Strategic Management Process

I/O Model
External Environment Industry Attractiveness Strategy Formulation Assets/Skills Assessment Implementation

RBV Model
Resources Capability Sustainable CA Strategy Formulation Implementation
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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)
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The Balanced Scorecard

FINANCIAL
To succeed financially, how should we appear to our shareholders? Objectives Measures Targets Initiatives

To achieve our vision, how should we appear to our customers?

Lagging
CUSTOMER
Objectives Measures

INTERNAL BUSINESS PROCESSES

Targets Initiatives Vision & Strategy To satisfy our shareholders and customers, what business processes must we excel at? Objectives Measures Targets Initiatives

Hard

Leading

INNOVATION AND LEARNING

To achieve our vision, how will we sustain our ability to change and improve? Objectives Measures Targets Initiatives

Soft
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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?

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Strategic Control (6) Strategic Control (6)

Formulating Directions Formulating Directions --Develop Vision/Mission (1) Develop Vision/Mission (1) -Set Objectives (2) -Set Objectives (2) Strategic Analyses (3) Strategic Analyses (3) External Environment Competitor/Stakeholder Internal Organization Strategy Formulation (4) Strategy Formulation (4) -Formulate and Consider -Formulate and Consider Alternatives Alternatives -Make Strategy Choice -Make Strategy Choice

Organizational Culture Stakeholder Influence Values / Ethics Opportunities and Threats from Economic, Political, Technological etc Sources Opportunities and Threats from Competition and Key Stakeholders Organizational Culture Stakeholder Influence Values / Ethics Context of Strategy
(type of organization, culture, values, life cycle competitive position) 14

Implementation (5) Implementation (5)

Hambrick & Fredrickson, 2001

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The Strategy Concept Levels of Analysis

Where to Compete? How to Compete? How to Contribute?
C o r p o r a te S tr a te g y

B u s in e s s S tr a te g y

F u n c tio n a l S tr a te g y

C h o ic e o f P r o d u c t s C h o ic e o f M a r k e t s C h o ic e o f C o m p e t it o r s
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