STRATEGIC MANAGEMENT

Prof. Dr. Vasilika KUME 11/26/2012

Exploring Corporate Strategy
9th Edition

Part I

Introduction

Introducing Strategy – Outline
• What is strategy and strategic management? • Strategic priorities at corporate, business and operational level • Vocabulary of strategy • Exploring Corporate Strategy, • Strategic management model

What is strategy? 11/26/2012 .

Strategic Management Where we are? Where we want to go? How we can go there? 11/26/2012 .

design. game.  Roget's New Millennium™ Thesaurus. subtlety. planning. story. procedure. scenario. scene. craft.1) says that strategy is a plan – Synonyms: action. slant. brainchild*. racket*. policy. cunning. grand design. game plan*. angle. proposition. artifice. gimmick. plan. First Edition (v 1. method. setup. maneuvering. system. tactics * = informal or slang 11/26/2012 . blueprint*. layout.2.What the strategy is?  Sun Tzu at “The Art of War “ says: strategy is “the thinking of generals” . scheme. project. program. approach.

net . www.elg. it addresses how to get from where you are to where you want to be 11/26/2012 Picture adapted with permission from Executive Learning Group.A strategy guides action.

. which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations.Definition of Strategy Strategy is the direction and scope of an organization over the long term.

11/26/2012 . or invisible logic keeps unique business together. Appropriate strategies lead to high economic performance.Strategy Definition-1 A strategy is a common thread.

What makes a successful business?  Choose the right business  Create the correct strategy  Design and develop correct infrastructure  Use the correct resources 11/26/2012 .

Michael Porter .A strategy delineates a territory in which a company seeks to be unique.

000 restaurants in 118 countries.  2009. McDonald appeared "old" because it had not been able to respond to the changing needs and interests of clients.  McDonald decided to focus on product innovation and modernization of its facilities in the country to continue geographic expansion . Mc Donald and Wal Mart were the only ones who ended the year with a profit.  McDonald situation in 2003 was not so good.Mc Donalds: “Firing all cylinders while preparing for the future"  2008. 32.

 In this way. .  Provided more value to its products  Trained employees. McDonald sought to adapt to the demands of consumers who are becoming more cautious about their spending.Mc Donalds  Gave up on the offer of products 'super size'.  Enriched the menu with salads and chicken products.  Increased the number of hours of service and  Redesigned its stores to better fit the demands of the youth.

McDonalds  How the example illustrates the definition of strategy on the Strategic Management subject? – Coordination of efforts and actions to create competitive advantage. modernization of facilities and innovations to deliver added value to customers .  How McDonald used distinctive competencies to adapt to its environment? – Cost reduction.

This service.  The firm continues to modernize existing facilities and precedes an expected economic growth with the acquisition of certain real estate in Europe.Mc Donalds  In 2009 the company added McCafe service. . – By providing high quality beverage and lower prices than competitors like Starbucks.  So McDonald's strategic leaders are engaged in making such decisions that will increase the value of the company in the future. added value to products of McDonald.

Why these choices? 11/26/2012 . ► Microsoft enters the mobile business. ► A pen manufacturer enters the market of perfumes and razors. ► Coca Cola is allocated in Highway. ► A missile manufacturer set up communication empire. ► A large Bank buys a movie blen një studjo kinemaje.Strategy-1 We see that companies make important decisions: ► A Swiss manufacturer of watches cooperates with a German manufacturer of vehicles (Swach with Mercedes).

Strategy-2   How can we get more wise decisions? What are techniques or methods used to analyze the bids offered to the firm?    What is the role that people play in determining the orientation of the firm? What is the relationship between rationality and intuition in these choices? Why changes happen? 11/26/2012 .

STRATEGJI? S = STATUS AT PRESENT T = THINK R = RELOOK A = ACT T = THINK AGAIN E = EVALUATE G = GO AHEAD Y = YET TO BE CONSIDERED .

everything is transformed Long-Term Planning Precede growth and solve difficulties Strategic Planning Change of strategic orientation and capacity New trends are predicted Strategic Management Face surprises. Hypothesis Past trends are repeated Process Period Periodic From 1900 Periodic From 1950 Periodic From 1960 11/26/2012 .Evolution of planning process Stages Budget/ Control Check deviation and solve difficulties Nothing is lost. strategic threats and rapid development Planning cycles do not allow coping with rapid changes Real time From 1975 Characteris tics.

What were the strategic planning mistakes?  The mistake of anticipating  The mistake of disconnection  The mistake of formalism 11/26/2012 .

Stacey) Assessing competitive forces (5 forces) and positioning Unique resources. politics. history 1980s 1980s Market positioning (Porter) Resource based theory (Hamel. culture. Prahalad) Firms as organisms (Eisenhardt. core competences 1990s Innovation to deal with change .Strategy as a Subject of Study 1960s Harvard case study What would you do if you were CEO? 60/70s 1980s Corporate planning Adaptive processes (Quinn) Systematised and analytical approach Complexity and uncertainty. Influence of experience.

step by step  Based on the facts  The efficiency-oriented STRATEGIC  Dynamic and changeoriented  Mission-oriented  Vision for the future. guide for the present  Proactive  Action-oriented  External focus  Innovation-creativity  Continuous process  Based on the options and qualitative indicators  Efficiency-oriented 11/26/2012 .Traditional planning/ strategic TRADITIONAL  Assumed stability  The tradition-oriented  Emphasis on future decisions  Reactive  Internal focus  Effort .testing  Closed process.

Effectiveness and Efficiency
 Strategic planning focuses more on the problem of effectiveness rather than efficiency.  It is more important to do the right things than things right  Company Facit  Company Brothers

11/26/2012

Why it happens that some businesses are more successful than others?
One argues as follows:

This is because in the world there are three types of people:  those making changes,  those who expect to occur changes  those who are surprised when something happens. ......................... Where do you part?
11/26/2012

Lisa in the Wonderland
“Can you, please, show me the way that I have to follow”? Asked Lisa the Ceshire Cat.
This depends on where are you headed – answers the cat. Than, it doesn’t, matter to know which direction you should go – says the cat.

It’s necessary just to arrive SOMEWHERE – adds Lisa thinking that in this way she would better explained her question.
Oh, in this case it is sure that you will do it – replies the cat – but you have to walk for a long period of time.

(Lewis Carrol)
11/26/2012

By focusing resources on strategic center of gravity. can prevail. War principles can be applied in the market battle. 11/26/2012 .SM and terms used Business strategists widely use terms that are used by military field. as generals. businessmen.

Heavily armed Centre Cavalry Cavalry Cavalry Heavily armed Centre Cavalry 6000 African soldiers 6000 African soldiers A The position of the two armies when the battle began Cartagenas = Black Romans = grey 11/26/2012 .

Qendra e armatosur rëndë Cavalry Kavaleria Kavaleria Kavaleria 6000 African Soldiers Qendra e armatosur rëndë Kavaleria 6000 ushtarë Afrikanë 6000 Heavy armed centre ushtarë Afrikanë African first position Pozicioni i dy ushtrive kur filloi beteja B African first position Kartagjenasit after the Roman cavalry was Roman center surrounded = të zinj Romanët = gri destroyed and two African divisions progressed 11/26/2012 6000 African Soldiers .

IBM .Different views of strategy Strategy: art or science? ART STRATEGY SCIENCE Intuits The role of the individual Concepts Rationality Logics. techniques Walkman 11/26/2012 Examples PC.

11/26/2012 . ► First PC was manufactured in August 1981. delivering 50.IBM ► In 1980 the growth rate of micro-ordinators sector was 70% annually. ► IBM. ► IBM managers decided to enter market. based on strategic tools entered successfully on the market in 1981. Commodore. ► In 1985 IBM became nr1 in PC manufacturing.000 pieces. Tandy. ► The firma that were developing fast were: Apple.

the market share was 30% 11/26/2012 . thought to unite these two sling with a walkman ► Marketing managers were against the project. ► With the intervention of Morita. walkman was produced without any market research. ► In three months he sold 30.000 products and in a year 1 million ► In 1995.SONY ► Akio Morita. passionate about music and golf. Sony president.

In 100 battles you will never be in danger“ Continues . Capacity is to defeat the enemy without doing war. " Avoid competitors strengths and attack their weaknesses. as well as an army should avoid strength and attack the opponent's weaknesses. 11/26/2012 "Know the enemy and know yourself. "? Use prior knowledge and understanding to maximize business power.Six principles of SUN TZU and the Art of Business Six principles for managers From Mark McNeilly (Oxford Press University – 1996) Conquer your market without destroying it "There is not a great ingenuity to win 100 victories in 100 battles. "Now an army should be compared with the water stream. As flowing water avoids the heights and uses low lands.

"When you treat soldiers with courtesy. the army will be united and will gladly serve its leaders" 11/26/2012 . fairness and equity. and to adapt them to your will.  "Those who are masters of war bring the enemy on the field of battle and are not brought there by him“  Develop your character as a leader to maximize the potential of your employees.Six principles of SUN TZU Use speed and preparation to face the competition. to give "form" to competitors." Use alliances and strategic control points of the industry. "To be prepared in advance for each event is one of the greatest virtues.

1986-1996.  Success Formula 4 +2 11/26/2012 .The formula for sustainable success-1  What makes a company successful?  There are studied 160 companies.  They resulted in four main and 2 auxiliary management practices that lead to success. for a 10-year period.

were very successful in increasing the value of the stock. and assets by 97% 11/26/2012 . and the value of assets increased by 358%. In 10 years of study. sales of these companies grew on average 415%. in 10 years had a 83% sales increase.The formula for sustainable success-2 Companies that were highly engaged in four main practices and in 2 of the four supportive practices. Companies that do not follow this formula.

Design a strategy that expresses what the customers.Practice 1: Design and implement a focused and clear strategy: Design a strategy that can produce value for the customer. partners and investors wish Adapt your strategy with market changes Communicate clearly the strategy to customers and stakeholders 11/26/2012 .

so that decisions will respond to market changes Continuously improve productivity. 11/26/2012 .Practice 2: Develop and keep a perfect operational execution Offer products and services that meet customers expectations Delegate authority in lower levels of management. at least at a rate double the industry.

Practice 3: Develop and maintain a performance oriented culture. Create a satisfactory work environment 11/26/2012 . Motivate morally the successful ones. Inspire managers and employees to do their best Encourage employees and managers in making decisions Motivate achievements using pay for performance.

Put the best people where decisions are made. an easy working environment. Encourage cooperation and exchange of information. 11/26/2012 .Practice 4: Develop and maintain a flexible and flat structure Make organization.

Auxiliary practices Support talented employees and innovation Support growth through mergers and partnerships and keep executives engaged in business 11/26/2012 .

but Henry Ford failed 5 times before he succeeded in producing cars. if we but take the time to do so. his famous sayings still sound true: “I strongly believe that there is often more to be learned from failure then there is from success.1 It may seem incredible. Although we have entered the 21st century.” Henry Ford 11/26/2012 .Why organizations fail? .

Why organizations fail? . Though once a highly successful company. despite its efforts. Pan American World Airways. WHY ORGANIZATIONS FAIL?  Failure at the top of the pyramid  Failure to marketing and clientele  Failure to financial management  Failure to structures and systems 11/26/2012 . was one of the planet's most famous airlines.2 Not earlier than 21 years ago. the performance began to decline continuously. known as Pan Am. Now it no longer exists.

 Leaders can fail to take risk 11/26/2012 .Why organizations fail? -3 Failure at the top of the pyramid When an organization fails it is clear that the chief executive and other senior managers are mainly responsible. Why?  Leaders may fail to establish a clear vision and direction of the organization.  Leaders may fail in the design of an effective strategy.  Leaders can fail in making critical decisions.

Strategic thinking:  Proactive  Results or rely on goals  Builds priorities  A discipline that results in deliberate decisions and rely on information  A discipline that results in consideration of the consequences 11/26/2012 .

Not strategic thinking Reactive Results or relies in the opportunities that arising It does not set priorities Results from spontaneous decisions Focus on short-term results and consequences 11/26/2012 .

Strategic Decisions are About…  The long-term direction of the organisation  The scope of an organisation’s activities  Gaining advantage over competitors  Addressing changes in the business environment  Building on resources and competences (capability)  Values and expectations of stakeholders which affect operational decisions .

Strategic Decisions are Likely to :     Be complex in nature Be made in situations of uncertainty Affect operational decisions Require an integrated approach (both inside and outside an organisation)  Involve considerable change .

Strategic Business Unit (SBU)  A strategic business unit (SBU) is a part of an organisation for which there is a distinct external market for goods or services that is different from another SBU .

Three Levels of Strategy Top Management S B U -s Products/ Markets 11/26/2012 .

business and function Corporate Strategy Determines in what businesses or industries will operate Business Strategy (SBU) Specifies how to compete and gain competitive advantage in selected industries or businesses Functional Strategy Each SBU has functional areas such as finance.Three Levels of Strategy The strategy can be perceived in three levels: corporate. Here are created and stored SBU's distinctive competencies 11/26/2012 .. marketing. etc.

activities and processes • Business model – how product.The Vocabulary of Strategy • Mission – overriding purpose • Vision/strategic intent – desired future state • Goal – general statement of aim or purpose • Objective – quantification or more precise statement of goal • Strategic capability – resources. service and information flow • Control – monitoring of action steps 11/26/2012 .

3 .A model of the elements of strategic management Exhibit 1.

Strategic Position (1)  The Organisation’s Environment – Political Economic Social Technological Environmental Legal – Sources of Competition – Opportunities and Threats  Strategic Capability of the Organisation – Resources and Competences – Strengths and Weaknesses .

Ethics and Culture – Sources of Power and Influence – Communication of Purpose: Mission and Objectives .Strategic Position (2)  Expectations and Purposes – Corporate Governance. Stakeholders.

e.g. M&A. international • Value added by corporate parent (parenting) – Directions and methods of development • Directions: Product/Market • Methods: Internal/organic. strategic alliances .Strategic Choices – Bases of competitive advantage at business level – Scope of activities at corporate level • Portfolio • Market spread.

Strategy into Action  Structuring the organisation  Marshalling resources (people. information. technology)  Managing change . finance.

a deliberate course of action. A specific plan can also be a maneuver to deceive a competitor or rival. Strategy often means our position in relation to competitors and the environment in which we operate. For many of us strategy is a plan .  Ploy. Once we take the action we are able to reflect on what we have done and to turn it into a model for future action. The views. opinions and preferences of decision-makers are crucial to the future of the organization.  Perspective.  Position.  Pattern. .Five definitions of strategy (5 P-s) Henry Mintzberg  Plan. general or specific.

Strategy Development Routes (1) .

Strategy Development Routes (3)  Intended strategy – Expression of desired strategic direction deliberately formulated or planned by managers  Unrealised strategy – Frequently strategies do not come about in practice • Plans are unworkable • Environment changes • Influential stakeholders do not agree with plan  Realised strategy – The strategy actually being followed by an organisation in practice  Emergent strategy – Comes about through everyday routines. activities and processes .

Strategy Process “PAIN” Factors Development needs “WIN” Factors TODAY We + Environment A 11/26/2012 Design strategies and actions THE FUTURE We + Environment The shortest route B .

Crossfunctional perspective of Planning Strategic planning Mission Objectives Strategies Portfolio Plan Plans of functional areas arising from the strategic plan Operational Plan Marketing Plan HR Plan Finance Plan Facilitiy Plan Objectives Forcasting Budgetes Strategies Programs Policies 11/26/2012 Objectives Forcasting Budgetes Strategies Programs Policies Figure 1-5 Objectives Forcasting Budgetes Strategies Programs Policies Objectives Forcasting Budgetes Strategies Programs Policies Objectives Forcasting Budgetes Strategies Programs Policies .

Why planning? Planning performs these functions Increases profitability Improves decision making Sets objectives Distributes resources Analyzes courses of action Reduces risk 11/26/2012 .

Why not plan? Excuses not reasons  Things are going well  We are very busy  We have not enough time  We do not know how to act  We do not have enough information  As a result of the plan to make changes  The plan can criticize the actions of the past  The plan may suggest additional costs that we can not afford 11/26/2012 .

you should put yourself in the position of an OUTSIDE CONSULTANT TO BOARD OF DIRECTORS 11/26/2012 .  When doing cases individually or as a team.The Board of Directors  The strategic management team is made up of the BOARD OF DIRECTORS AND TOP MANAGEMENT.

11/26/2012 .Role of the Board in Strategic Management  Monitor  Evaluate and influence  Initiate and determine Top Management have increased their salaries in excess of 220 times lowest salaried workers.

Staff. and Evaluate and Control Management 11/26/2012 . Organize.2 Responsibilities of Top Management in Strategic Management  Provide executive leadership  Manage strategic planning process – Plan. Direct Implementation.

17 Styles of Corporate Governance Styles of Corporate Governance High Degree of Involvement By Top Management Entrepreneurship Partnership management management Chaos Marionette management Low Low management High Degree of Involvement By Board of Directors .2.

How will you go about achieving your desire results? The answer to this you can call strategy.“What do you want to achieve or avoid? The answers to this question are objectives.” William E Rothschild .

11/26/2012 . he helps coordinate divisions. strategic management can not solve all the problems and challenges of the organization.Summary -1  Strategic management is important for you as an individual because you would be working in an organization and you will be rewarded according to your skills to manage strategically. However. functions and activities of the organization. he helps employees know what to do and how to respond to changing situations.  Strategic management is important to organizations because it significantly affects the performance of the organization.

implement strategies.Summary -2  A strategy is a series of decisions and actions oriented towards the goal of the organization. . modify or change strategies if necessary.  Strategic management involves those decisions and actions in which members of the organization analyze the current situation. 11/26/2012 . which are in harmony with the resources and capacity of the organization and with the opportunities and threats to the environment. and evaluate. develop appropriate strategies.

(scanning and evaluation of internal and external environment of the organization).  The process of strategic management consists of the analysis of the situation. focusing on the external environment. internal environment and the future of the company. 11/26/2012 .Summary -3  Strategic management differs from other types of management because it is interdisciplinary. the formulation of strategy (design and selection of the most appropriate strategy). implementation and evaluation.

but all analysis should be performed.  All members of the organization play a role in the process of formulating and implementing strategy 11/26/2012 .  Strategic management has its roots in military strategies. firms seek to gain advantages over competitors. the process of strategic management can not follow all the stages in the order. as military units seek to gain advantages over the enemy.Summary-4  In reality.

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