Strategic Management/

Business Policy
Power Point Set #1:
Definitions of Strategy
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The Wisdom of Choice:
To try and fail is at least to learn; to fail to try is to suffer
the inestimable loss of what might have been.

Chester Barnard, The Functions of the Executive
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What Is Strategic Management About?
Understanding how firms create, capture, and sustain
competitive advantage.

Analyzing strategic business situations and formulating
strategic plans. [strategy content]

Implementing strategy and organizing the firm for
strategic success. [strategy process]
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Identify
current
mission
and
strategic
goals
Conduct
competitive
analysis:
strengths
weakness
opportunity
threats
Develop
specific
strategies:
corporate
business
functional
carry out
strategic
plans
maintain
strategic
control
assess
organisational
factors
assess
environmental
factors
Strategy implementation Strategy formulation
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What Is Strategic Management About?
Sustainable competitive advantage occurs
when a firm implements a value-creating
strategy of which other companies are
unable to duplicate the benefits or find it
too costly to imitate.

An important basis for sustainable
competitive advantage is the development
of resources and capabilities.

Core competencies are resources and
capabilities (often related to functional-level
skills) that serve as a source of competitive
advantage for a firm over its rivals.


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Key Characteristics Of Strategic Decisions
Important;

Typically, under some Uncertainty;

Involves Alternatives, Consequences, and Choice;

Significant Commitment of Resources; and

Not Easily Reversible.
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Strategy Making : Design or Process?
Strategy Making : Design or Process?
Strategy as Design
Planning and
rational choice
INTENDED
STRATEGY
Many decision makers
responding to multitude of
external and internal forces
REALIZED STRATEGY
EMERGENT
STRATEGY
Strategy as Process
Mintzbergs 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.
Mintzbergs 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.
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The Evolution of Strategic Management
The Evolution of Strategic Management
DOMINANT
THEME
MAIN
ISSUES
CONCEPTS
&
TECHNIQUES
IMPLEMENT-
ATION
1950s 1960s Early-mid Late1970s Late 1980s Late 1990s
1970s early 1980s early 1990s early 2000s
Budgetary Corporate Corporate Analysis of Quest for Strategic
planning & planning strategy industry & competitive innovation
control competition advantage The New
Economy
Financial control Planning growth Diversifica- Positioning Competitive Innovation &
ion advantage knowledge
Budgeting Forecasting & Portfolio Analysis of Resource Dynamic
project appraisal investment planning. industry & analysis. sources of
planning Synergy competition Case advantage
market competences Knowledge
share management
cooperation
Emphasis on Rise of Diversifi- Industry/market Restructuring Virtual orga-
financial corporate planning cation. selectivity. BPR. nization.
management departments Quest for Active asset Refocusing Alliances
& formal global management Outsourcing Quest for
planning market share critical mass
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The Basic Framework
Strategy: the Link between the
Firm and its Environment
The Basic Framework
Strategy: the Link between the
Firm and its Environment
THE FIRM
Goals &
Values
Resources &
Capabilities
Structure &
Systems
THE
INDUSTRY
ENVIRONMENT
Competitors
Customers
Suppliers
STRATEGY
STRATEGY
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How Does It Compare to Other
Business Classes?
Mktg. Oper
.
Strategy
Finance
Acctg. H.R.
Task
environment
Macro level
environment
The
firm
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Task Environment
Customers and Markets:
Distributors
End users

Competitors:
Competitors for Markets
Competitors for Resources

Suppliers:
Suppliers of physical resources
Suppliers of financial resources
Suppliers of human resources

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Task Environment
Regulatory Groups:

Government
Unions
Special Interest Groups

Technology:

Rate of Development
Substitutes
Stage of Product or Industry
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The Role of Strategy In Business is to Generate and Sustain Value
via the Linkages Between Position, Resources, and Organization
Positioning
Resources
& Capabilities
Organization
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Positioning
Scope of the Firm:

Geographic Scope

Product-market Scope: Choice of businesses
(corporate portfolio analysis)

Product Market Positioning
within a business

Vertical integration
decisions


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Resources & Capabilities
Tangible Resources
e.g., physical capital


Organizational Capabilities
e.g., routines and standard operating procedures


Intangible Resources
e.g., trademarks, know-how
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Organization
Structure
Formal Definition of authority
Conflict Resolution


Systems
Rules, Routines, Evaluation and rewards


Processes
Informal communication, networks, recruitment
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Definitions of Strategy
The term strategy is intended to focus on the interdependence
of the adversaries decisions and on their expectations about each
others behavior (Thomas Schelling The Strategy of Conflict)

Strategy can be defined as the 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 those goals.
(Alfred D. Chandler Strategy and Structure)

Strategy is: The pattern or plan that integrates an organizations
major goals, policies, and action sequences into a cohesive whole.
A well formulated strategy helps to marshal and allocate an
organizations resources into a unique and viable posture based
on its relative internal competencies and shortcomings, anticipated
changes in the environment, and contingent moves by intelligent
opponents. (James Brian Quinn, Logical Incrementalism)
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Defining the Business: The Starting Point of Strategy
Example: Fall of the Railroads

They let others take customers away from them because
they assumed themselves to be in the railroad business rather
than in the transportation business. The reason they defined
their industry wrong was because they were railroad
oriented instead of transport oriented; they were product
oriented instead of customer oriented.

Theodore Levitt Market Myopia
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Mission Statement and Goals
It is the function of the top management team to
provide the firms purpose or strategic intent.

Chester Barnard The Functions of the Executive



Alfred Sloan My Years with General Motors


Komatsu ---> Encircle Caterpillar
Canon ---> Beat Xerox
Kodak ---> Be the leader in the imaging sector
Coca Cola ---> To put a Coke within arms reach of
every consumer in the world.
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Fundamental question of the choice of Goals:
Planning for what purpose(s)?
Profitability (net profits)
Efficiency (low costs)
Market Share
Growth (e.g., increase in total
assets, sales, etc)
Shareholder Wealth (dividends
plus stock price appreciation)
Utilization of Resources
(e.g., ROE, ROI)
Reputation
Contribution to Stakeholders
(e.g., employees, society)
Survival (avoid bankruptcy)

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The Managers role in balancing expectations
Business Roundtable:
Balancing the shareholders expectations of maximum return
against other priorities is one of the fundamental problems
confronting corporate management.

Understanding corporate strategy means understanding the
competing value claims of multiple stakeholders.

Stakeholders are the individuals and groups who can affect, and
are affected by, the strategic outcomes achieved and who have
enforceable claims on a firms performance.

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Key Drivers of Value Creation and Sustainable
Competitive Advantage:

Generating economic value can be accomplished
through:

REVENUE drivers

COST drivers

RISK drivers

1-25
Value and Cost Drivers
Figure 2.5
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Sources of Superior Profitability
RATE OF PROFIT
ABOVE THE
COMPETITIVE
LEVEL
How do we
make
money?
INDUSTRY
ATTRACTIVENESS
Which
businesses
should we be
in?
COMPETITIVE
ADVANTAGE
How should
we compete?
CORPORATE
STRATEGY
BUSINESS
STRATEGY
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The Levels of Strategy
R&D
HR
Finance
Production
Mktg/Sales
Division A
R&D
HR
Finance
Production
Mktg/Sales
Division B
R&D
HR
Finance
Production
Mktg/Sales
Division C
Corporate
Headquarters
Corporate - General Electric
Business - Home Appliances
Functional - e.g., Production
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Corporate Strategy
At the corporate level, value creation can occur if the
individual parts of a firm are integrated into a
coherent whole.

Corporate strategy is the way a company creates
value through the configuration and coordination of
its multi-market activities.
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BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E

McGraw-Hill Australia 2001

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Managers as
decision makers
Assumptions of the
Rational Model
Managers as
decision makers
Assumptions of the
Rational Model
Rational
decision
making
Rational
decision
making
An optimal decision
is possible
An optimal decision
is possible
All relevant information
is available
All relevant information
is available
All relevant information is
understandable
All relevant information is
understandable
All alternatives are known
All alternatives are known
All possible outcomes known
All possible outcomes known
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BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E

McGraw-Hill Australia 2001

10
Managers as
decision makers
Satisficing
Managers as
decision makers
Satisficing
Satisficing
decision
making
Satisficing
decision
making
Time constraints
Time constraints
Limited ability to
understand all factors
Limited ability to
understand all factors
Inadequate base
of information
Inadequate base
of information
Limited memory of
decision-makers
Limited memory of
decision-makers
Poor perception of factors
to be considered
in decision process
Poor perception of factors
to be considered
in decision process
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Our Learning Goals:
Pushing Down Through Blooms Taxonomy
Our Learning Goals:
Pushing Down Through Blooms Taxonomy
1. Knowledge: remember
material; know terms, facts,
procedures, basic concepts
2. Comprehension:
grasp meaning; understand
facts, interpret charts,
translate verbal to math
estimate consequences
3. Application: use
material in new situations;
apply concepts to real
situations, follow a procedure
1. Knowledge: remember
material; know terms, facts,
procedures, basic concepts
2. Comprehension:
grasp meaning; understand
facts, interpret charts,
translate verbal to math
estimate consequences
3. Application: use
material in new situations;
apply concepts to real
situations, follow a procedure
4. Analysis: break material
into components & understand
structure; recognize logical
fallacies, distinguish fact and
inference, evaluate relevancy of
data
5. Synthesis: integrate parts
to make a new whole, integrate
learning to solve a problem
6. Evaluations: judge logical
consistency, judge whether
conclusions are supported by
facts
4. Analysis: break material
into components & understand
structure; recognize logical
fallacies, distinguish fact and
inference, evaluate relevancy of
data
5. Synthesis: integrate parts
to make a new whole, integrate
learning to solve a problem
6. Evaluations: judge logical
consistency, judge whether
conclusions are supported by
facts
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Summary Takeaways
Providing PURPOSE is an important function for
the executive.

One important purpose is to CREATE VALUE.

Value creation can lead to SUSTAINABLE
COMPETITIVE ADVANTAGE.