BUSINESS POLICY

BUS 400
B RYA N T Z H U H A I

PAT R I C K B E H A R - C O U R T O I S
SPRING SEMESTER 2020
THE CONCEPT OF
S T R AT E G Y
CHAPTER 1
B RYA N T Z H U H A I

PAT R I C K B E H A R - C O U R T O I S
SPRING SEMESTER 202O
THE CONCEPT OF STRATEGY

OUTLINE

• The role of strategy in success

• A framework for strategy analysis
• The evolution of strategic management
• What is strategy? How do we describe it?
• How is strategy made?
• Strategy and not-for-profit organizations

All rights reserved to 2019 Robert M. Grant, www.contemporarystrategyanalysis.com

THE ROLE OF STRATEGY IN SUCCESS

Ingredients of Success
QUEEN ELIZABETH &
THE HOUSE OF WINDSOR
GOALS Life-long dedication to role of
monarch and head of state
LADY GAGA &
THE HOUSE OF GAGA
Single-minded quest for stardom
through her Lady Gaga persona

UNDERSTANDING Alert to the changing political and Awareness of:

THE social environment .
ENVIRONMENT Sensitive to the mood and needs • marketing potential of social
of the British people
RESOURCE Recognized lack of formal
APPRAISAL authority and need to exploit
traditional loyalties and informal
influence
IMPLEMENTATION Resolute commitment; strong
self-discipline; building an
effective family team supported
by loyal professionals
• new economics of the music business
networking
• needs of Generation Y
Exploited her innate theatricality,
eccentricity, design capability, and
musical skills
Devotion to living the Lady Gaga
character; engagement in continually
creating new images for herself
THE ROLE OF STRATEGY IN SUCCESS

What Makes a Successful Strategy?

Successful strategy

EFFECTIVE IMPLEMENTATION

Long-term, Profound
Objective
simple and understanding of the
appraisal of
agreed competitive
resources
objectives environment
THE BASIC FRAMEWORK FOR STRATEGY ANALYSIS

Strategy as the Link between the

Firm and its Environment

THE FIRM THE

• Goals & INDUSTRY
Values ENVIRONMENT
STRATEGY
STRATEGY
• Resources & • Competitors
Capabilities • Customers
• Structure & • Suppliers
Systems
THE BASIC FRAMEWORK FOR STRATEGY ANALYSIS

Ryanair’s activity system

Low operating costs

Job
High aircraft No-frills product High labor flexibility
utilization offering productivity
Boeing Direct
737s only Single class, no sales
25-min.
turnaround Low prices; reserved seating only
Charges for all
additional No baggage
Point-to-point routes Internet-only
services transfer check-in

Secondary
airports
A BRIEF HISTORY OF BUSINESS STRATEGY

1950s: 1960s & early 1970s:

Financial budgeting Corporate planning
• Operational budgeting • Corporate plans based on medium-term
• DCF capital budgeting economic forecasts

The Evolution of
Strategic
3 key changes:
Late 1970 & 1980s:
Emergence of Strategic Management
Management
1. Changing concept •ofStrategy
strategyas a quest for profit
2. Changing processes of strategy
• Industry analysisformulation
and competitive positioning
21st3.century:
New tools of strategy analysis
Adapting to Turbulence
• Adapting to and exploiting
digital 1990s:
• The quest for flexibility & The Quest for Competitive Advantage
strategic innovation • Emphasis on resources & capabilities
• Strategic alliances • Shareholder value maximization
• Social and environmental • Refocusing, outsourcing, delayering, cost
responsibility cutting
STRATEGY TODAY

What is Strategy?
• Distinguishing strategy from tactics:
– Strategy is the overall plan for deploying resources to
establish a favorable position.
– Tactic is a scheme for a specific maneuver

• Characteristics of strategic decisions:

– Important.
– Involve a significant commitment of resources.
– Not easily reversible
STRATEGY TODAY

Definitions of Strategy
Strategy: a plan, method, or series of actions designed to achieve a
specific goal or effect. — Wordsmyth Dictionary (http://www.wordsmyth.net)

The determination of the long-run Strategy: “a cohesive

goals and objectives of an
enterprise, and the adoption of
courses of action and the allocation
of resources necessary for
carrying out these goals.
— Alfred Chandler, Strategy and Structure
(MIT Press, 1962)
response to an important
challenge.”
——Richard Rumelt, Good Strategy
/ Bad Strategy (Crown Business,
2011)

Lost Boy: “Injuns! Let ’s go get ‘em!”

John Darling: “Hold on a minute. First we must have a strategy.”
Lost Boy: “Uhh? What’s a strategy?”
John Darling: “It’s, er … it’s a plan of attack.”
— Walt Disney’s Peter Pan
STRATEGY TODAY

Why Do Firms Need Strategy?

Strategy as Decision Improves the quality

Support of decision making

Strategy as Coordination Creates consistency

and Communication and unity

Improves perform-
Strategy as Target ance by setting
high aspirations
STRATEGY TODAY

Sources of Superior Profitability

INDUSTRY
ATTRACTIVENESS
CORPORATE
Which businesses STRATEGY
RATE OF PROFIT should we be in?
ABOVE THE COST
OF CAPITAL

How do we make
money?
COMPETITIVE
ADVANTAGE BUSINESS
STRATEGY
How should we
compete?
STRATEGY TODAY
Describing Strategy:
Current Positioning, Future Direction
STRATEGY AS POSITIONING
Where are we competing?
- Product market scope
- Geographical scope
- Vertical scope
• How are we competing?
- What is the basis of our
competitive advantage?)
COMPETING FOR THE
PRESENT
STRATEGY AS DIRECTION
What do we want to become?
- Vision statement
• What do we want to achieve?
- Mission statement
- Performance goals
• How will we get there?
- Guidelines for development
- Priorities for capital
expenditure, R&D
- Growth modes: organic
growth, M&A, alliances
PREPARING FOR THE
FUTURE
HOW IS STRATEGY MADE? THE STRATEGY PROCESS

Strategic Making: Design or Process?

Strategy as Design Strategy as Process

Planning and Many decision makers

rational choice responding to multitude of
external and internal forces

INTENDED EMERGENT
REALIZED
STRATEGY STRATEGY
STRATEGY

Mintzberg’s 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.
HOW IS STRATEGY MADE? THE STRATEGY PROCESS

APPLYING STRATEGY ANALYSIS

Setting the strategic Analyzing the situation Formulating Implementing

agenda strategy strategy

Industry
analysis

Identify
the Appraise Diagnose Formulate Implement
current performance performance strategy strategy
strategy

Analysis of
resources &
capabilities
STRATEGIC MANAGEMENT OF NOT-FOR-PROFIT ORGANIZATIONS

Applying Strategy Analysis to Not-For-Profits

Organizations in Organizations in Organizations sheltered from
competitive competitive competition
environments that environments that
charge users provide free services
Examples Royal Opera House Salvation Army European Central Bank
Guggenheim Museum Habitat for Humanity New York Police Dept.
Stanford University Linux World Health Organization

Analysis of goals Identifying mission, goals, and performance indicators and ensuring
and performance consistency among them is a key area of strategy analysis for all non-profits
Analysis of the Main tools of Main arena for Not important. However,
competitive competitive analysis competition and agencies compete for public
environment are the same as for competitive strategy is funding.
for-profit firms the market for funding
Analysis of Identifying and exploiting distinctive resources Analysis of resources and
resources and and capabilities critical to design strategies capabilities essential in
capabilities that create competitive advantage determining priorities and
designing strategies
Strategy The basic principles of organizational design, performance management, and
implementation leadership are common to all organizational types
Terms you need to research and know for
the next class:
…if you are still unsure about them…

• Return on Capital Employed (ROCE) • Market capitalization

• Return on Equity (ROE) • Weighted average cost of capital
• Return on Assets (ROA) (WACC)
• Return o Sales (ROS) • Cash flow
• Gross margin • Discounted cash flow (DCF)
• Selling, General & Administrative Expense (SG&A) • Net present value (NPV)
• Operating margin • Cost of Goods Sold (COGS)
• Net margin • Depreciation
• Equity • Options
• Earnings before interests & taxes (EBIT)
 SUMMARY
q The role of strategy in success
§ Strategy important to the success of individuals and organizations
§ Successful strategies embody clear goals; insight into the external
environment; appraisal of internal resources; sound implementation

q The framework for strategy analysis

§ Links the firm to its external environment
q The evolution of strategic management
§ Strategy was concerned with detailed planning; now its is about direction,
identity, and exploiting the sources of superior profitability
q What is strategy? How do we describe it?
§ Strategy describes where a firm is competing, how it is competing, and the
direction in which it is developing
q How is strategy made?
§ Through combining purposeful planning (rational design) and flexible
responses to changing circumstances (emergence).
q Strategic management of not-for-profit organizations
§ Most of the tools of strategy analysis are applicable

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• Copyright © 2019 John Wiley & Sons, Inc.