STRATEGIC MANAGEMENT

What is strategy?
 Method
 Plan
 How to achieve a goal (long term mission)
5 P rule: proper preparation prevents poor performance

First you must be clear on your current state and activities (Where you are?). You can do this by
doing a GAP analysis (stakeholders, available resources, and competencies, expected obstacles).
Then you think about your desired state (vision, mission, and values)
Operational excellence (always improving internal activities) -> reduce cost, increase quality, reduce
delays.
Strategy is about being different

Who is strategy made for?

STAKEHOLDERS: are those individuals or groups that depend on an organization to fulfil their own
goals and on whom, in turn, the organization depends.
Shareholders are stakeholders as well (investors)
You cannot only think about profit but also people (social performance) and planet (environmental
performance)

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 1. What are our stakeholders?
2. What are our stakeholder’s interests and claims?
3. What opportunities and threats do our stakeholders represent?
4. What economic, legal, financial, ethical, and philanthropic responsibilities do we have to our
stakeholders?
5. What should we do to efficiently address the stakeholder’s concerns?

SESSION 2: MACROENVIRONMENTAL ANALYSIS

Organisations depend upon their environments for their survival.

LAYERS OF THE BUSINESS ENVIRONMENT

PESTEL ANALYSIS
PESTEL analysis highlights six environmental factors in particular: political, economic, social,
technological, ecological, and legal.
Organisations need to consider:
• The market environment (e.g. suppliers, customers and competitors).
• The nonmarket environment (e.g. NGOs, Government, media and campaign groups).

USING THE PESTEL FRAMEWORK

• Apply selectively – identify specific factors which impact on the industry, market and
organisation in question.

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 • Identify factors which are important currently but also consider which will become more
important in the next few years.
• Use data to support the points and analyze trends using up-to-date information.
• Identify opportunities and threats – the main point of the exercise.

POLITICAL FACTORS
• The role of the state, for example, as an • Political risk in foreign markets.
owner, customer, or supplier of • Changes in trade blocks (e.g.,
businesses. BREXIT).
• Government policies. • Exposure to civil society organisations
• Taxation changes. (e.g., lobbyists, campaign groups,
• Foreign trade regulations. social media).

Political risk analysis is the analysis of threats and opportunities arising from potential political
change. There are two key dimensions to political risk analysis:
• The macro–micro dimension – assessment of the macro risk is that which attaches to whole
countries (e.g., Middle East countries assessed as high risk.) Micro risk is that which attaches
to the specific organisation.
• The internal–external dimension – internal factors relate to issues within a country (e.g.
government change); external factors arise outside a country
but have an impact within it (e.g. OPEC oil prices).

ECONOMIC FACTORS
• Business cycles. •Exchange rates.
• Interest rates. •Unemployment rates.
• Personal disposable income. •Differential growth rates around the
world.
Economic Cycles – economic growth rates have an underlying tendency to rise and fall in regular
cycles.
Some industries are particularly vulnerable to economic cycles:
• Discretionary spend industries (e.g. housing, cars).
• High fixed cost industries (e.g. airlines, hotels).

SOCIAL FACTORS
• Demographics
• Wealth distribution
• Geography
• Culture
• Social networks within an ‘organisational
field’ (the community of organisations that interact more frequently with one another than
with those outside the field, including e.g. regulators, campaign groups, media

Sociograms are maps of potentially important social (or economic) connections within an
organisational field.
Maps can help assess the effectiveness of networks and identify who is the most powerful and
innovative within them.

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Power and innovation increase with:
• Network density – the number of interconnections between members.
• Central hub positions – when a particular
organisation interacts with many other members.
• Broker positions – an organisation that connects otherwise separate groups/organisations.

TECHNOLOGICAL FACTORS
New discoveries and technology developments.
Examples include developments on the Internet, nano-technology or the rise of new composite
materials.
There are five primary indicators of innovative activity:
• Research and development budgets. • New product announcements.
• Patenting activity. • Media coverage.
• Citation analysis.

ECOLOGICAL FACTORS
Ecological factors: This refers to ‘green’ or environmental issues, such as pollution, waste and
climate change.
Examples are environmental protection regulations, energy problems, global warming, waste
disposal and recycling.
Three sorts of ecological challenges that organisations may need to meet:
• Direct pollution obligations – minimizing the production of pollutants; cleaning up and
disposing of waste.
• Product stewardship – managing ecological issues throughout the organisation’s entire
value chain and the whole life cycle of the firm’s products.
• Sustainable development – whether the product or service can be produced indefinitely into
the future.

LEGAL FACTORS
• Labour, environmental and consumer
regulations.
• Taxation and reporting requirements.
• Rules on ownership.

PESTEL analysis should consider not only formal laws and regulations but also more informal
norms: Informal rules are patterns of expected (‘normal’) behavior that are hard to ignore (e.g.,
proper respect for the ecological environment).
Varieties of capitalism. Formal and informal rules vary sufficiently between countries to define
very different institutional environments:
• Liberal market economies – formal & informal rules favor competition between companies
(US, UK).
• Coordinated market economies – encourage more coordination between companies,
supported by industry associations or similar frameworks (Germany, Japan).
• Developmental market economies – strong roles for the state, which own or influence
companies that are important for economic development (China, India).

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 FORECASTING
All strategic decisions involve forecasts about future conditions and outcomes. PESTEL factors will
feed into these forecasts. Accurate forecasting is notoriously difficult as organisations are frequently
trying to surprise their competitors.
Forecasting takes three fundamental approaches based on varying degrees of certainty:
- Single point: is where organisations have such confidence about the future that they will
provide just one forecast number
- Range: is where organisations have less certainty, suggesting a range of possible outcomes
with different degrees of probability and a central projection identified as the most probable
- Multiple futures forecasting typically involves even less certainty, focusing on a set of
possible yet distinct futures with radically different outcomes. Alternative futures can be fed
into scenario analyses though not as simple forecasts.

SCENARIOS
Scenarios are plausible views of how the environment of an organisation might develop in the future
based on key drivers of change about which there is a high level of uncertainty.
• Build on PESTEL analysis and drivers for change.
• Offer more than a single view. An organisation will typically develop a few alternative
scenarios (2–4) to explore and evaluate future strategic options.
• Scenario analysis is used in industries with long planning horizons, for example, the oil
industry
or airlines industry.
Carrying out scenario analysis:
Identify the most relevant scope of the study – the relevant product/market and time span.
Identify key drivers of change – PESTEL factors which will have the most impact in the future but
which have uncertain outcomes and are mutually independent.
For each key driver select opposing outcomes where each lead to very different
consequences.
Develop scenario ‘stories’: That is, coherent and plausible descriptions of the environment that result
from opposing outcomes.
Identify the impact of each scenario on the organisation and evaluate future strategies in the light of
the anticipated scenarios.
Monitor progress: Identify indicators that might give an early warning of the way the
environment is changing and monitor such indicators.

3rd Class

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Competitive advantage
- Threshold capabilities
- Distinctive capabilities

VSP -> unique selling

proposition

STAKEHOLDERS AND GOVERNANCE

Corporate governance: is concerned with the structures and systems of control by which managers
are held accountable to those who have a legitimate stake in an organisation
Stakeholders: individuals or groups that depend on an organisation to fulfil their own goals and on
whom, in turn, the organisation depends.
- External: customers, suppliers, creditors, alliance partners, governments, media,
communities…
- Internal: employees, stockholders, board members

Types of stakeholders

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 o Economic / Social or Political / Technological / Community / Internal

The governance chain: shows the roles and relationships of different groups involved in the
governance of an organisation

SESSION 3: RESOURCES AND CAPABILITIES ANALYSIS

RESOURCES AND CAPABILITIES

Sometimes it is not only the external environment that matters for strategy, there are also differences between
organizations that need to be considered. This puts the focus on variations between companies within the
same environment and how they vary in their resources and capabilities arrangements

Resources (what we
have) are the assets that
organizations
have or can call upon
while capabilities
(what we do) are the ways in which those assets are deployed.
Threshold resources and capabilities are those needed for an organisation to meet the necessary requirements
to compete at all in a given market and achieve parity with competitors in that market. Without these, the
organisation could not survive over time.

While threshold resources and capabilities are important, they do not in themselves create competitive
advantage or the basis of superior performance. They can be thought of as ‘qualifiers’ to be able to compete at
all with competitors, while distinctive resources and capabilities are ‘winners’ required to triumph over
competitors. Distinctive resources and capabilities are required to achieve competitive advantage
• Threshold capabilities are those needed for an organisation to meet the necessary requirements to
compete in a given market and achieve parity with competitors in that market – ‘qualifiers.

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 • Distinctive capabilities are those that are required to achieve competitive advantage. Distinctive or
unique capabilities that are of value to customers and which competitors
find difficult to imitate – winners.

VRIO ANALYSIS
VRIO analysis of resources and capabilities to evaluate if they contribute to competitive advantage.

V – Value of resources and capabilities: take advantage of opportunities and neutralise threats. Provide
value to customers are provided at a cost that still allows an organisation to make an acceptable return
R – Rarity: Rare capabilities are those possessed uniquely by one organisation or only by a few others.
(For example, a company may have patented products, have supremely talented people or a powerful brand.)
Rarity could be temporary. (For example, Patents expire, key individuals can leave or brands can be de-valued
by adverse publicity.)
I – Inimitability: competitors find difficult and costly to imitate, to obtain or to substitute. Competitive
advantage can be built on unique resources (a key individual or IT system) but these may not always be
sustainable (key people leave or others acquire the same systems). Sustainable advantage is more often found
in competences (the way resources are managed, developed, and deployed) and the way competences are
linked together and integrated
O – Organisational support: The organisation must be suitably organised to support the valuable, rare and
inimitable capabilities that it has. This includes appropriate processes and systems.

THE VALUE CHAIN

The value chain describes the categories of activities within an organisation which, together, create a product
or service. Most organisations are also part of a wider value system, the set of inter-organisational links and
relationships that are necessary to create a product or service. Both are useful in understanding the strategic
position of an organisation and where valuable resources and capabilities reside.

BENCHMARKING
Benchmarking is used as a means of understanding how an organisation compares with others.
- Industry/sector benchmarking. Insights about performance standards can be gleaned by comparing
performance against other organisations in the same industry sector or between similar service
providers against a set of performance indicators
- Best-in-class benchmarking. Best-in-class benchmarking compares an organisation’s performance or
capabilities against ‘best-in-class’ performance – from whichever industry – and therefore seeks to
overcome some of the above limitations

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SWOT analysis drawing together an understanding of the strengths, weaknesses, opportunities and threats an
organisation faces.

DYNAMIC CAPABILITIES
Dynamic capabilities, by which he means an organisation’s ability to renew and recreate its resources and
capabilities to meet the needs of changing environments.
Managers need to adapt and change resources and capabilities if the environmental changes and this can be
done based on dynamic capabilities.
GENERIC DYNAMIC CAPABILITIES
• Sensing capabilities – constantly scanning and exploring new opportunities across markets and
technologies (e.g., R&D and market research).
• Seizing capabilities – addressing opportunities through new products, processes, and activities.
• Re-configuring capabilities – new products and processes may require renewal and re-configuration
of capabilities and investment in new technologies.

INTERNAL CAPABILITY DEVELOPMENT

• Building and recombining capabilities – this requires creative entrepreneurial skills (e.g. a culture that
promotes capability innovation).
• Leveraging capabilities – identifying capabilities in one part of the organisation and transferring them
to other parts (sharing best practice).
• Stretching capabilities – building new products or services out of existing capabilities

SESSION 4: SHAREHOLDERS, STAKEHOLDERS AND

GOVERNANCE

STAKEHOLDERS
Stakeholders are those individuals or groups that depend on an organisation to fulfil their own goals and on
whom, in turn, the organisation depends.
Stakeholders can be divided into 5 types:
• Economic (e.g. suppliers, shareholders, banks)
• Social/political (e.g. government agencies)
• Technological (e.g. standards agencies)
• Community (e.g. local residents)
• Internal (e.g. employees, local offices)

Stakeholder mapping identifies stakeholder power and

attention to understand political priorities. The power and
interest of stakeholders depend on the issue being considered
– different issues require different maps.

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CONFLICTS OF STAKEHOLDER INTERESTS AND EXPECTATIONS
1. Pursuit of short-term profits may suit shareholders and managerial bonuses but come at the expense of
investment in long-term projects.
2. Family business owners may want business growth, but also fear the loss of family control if they
need to appoint professional managers to cope with larger-scale operations.
3. Investing in growth strategies may require additional funding through share issue or loans, but thereby
risk financial security and independence.
4. Going public on the stock market may raise funds but require unwelcome degrees of openness and
accountability from management.
5. Expanding into mass markets may require a
reduction in quality standards.
6. In public services, excellence in specialised
services might divert resources from standard
services used by the majority (e.g., heart
transplants come at the cost of preventative
dentistry).
7. In large multinational organisations, conflict can
result because of a local division’s
responsibilities simultaneously to the company
head-office and to its host country.

POWER
Power is the ability of individuals or groups to persuade, induce or coerce others into following strategies.

STAKEHOLDER MAPPING
Given that there are often so many stakeholders, it is useful to categorise them according to their likely
influence on strategic decisions. In weighing up strategies, not all values are equal. Organisations are
coalitions of stakeholders, each of which has different levels of power and each of which gives different
amounts of attention to strategic issues.9 Stakeholder mapping identifies stakeholder power and attention in
order to understand strategic priorities. Given that there are often so many stakeholders, it is useful to
categorise them according to their likely influence on strategic decisions. In weighing up strategies, not all
values are equal. Organisations are coalitions of stakeholders, each of which has different levels of power and

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each of which gives different amounts of attention to strategic issues. Stakeholder mapping identifies
stakeholder power and attention in order to understand strategic priorities.

OWNERSHIP MODELS
Publicly quoted companies
• Shares are sold to the general public or financial institutions.
• Such companies are usually managed by professional managers.
• Their objective is to make a financial return for the owners (profit focus).
• Unsatisfied shareholders will sell their shares or seek to remove the managers
State-owned enterprises
• Organisations wholly or majority owned by national or regional governments. They are especially
important in developing economies (e.g. China, Russia and Brazil).
• Privatisation has reduced their importance but there are many quasi-privatised organisations (e.g. Free
schools).
• Politicians delegate day-to-day control to professional managers but may intervene on strategic issues.
• They need a financial surplus to fund investment but also pursue other objectives in line with
government policy.
Entrepreneurial businesses
• Such businesses are substantially owned and controlled by their founders (e.g. Arcelor Mittal,
Facebook and the Virgin Group).
• With growth, more professional managers and external investors are required.
• They typically focus on profit to survive and grow but may also have personal missions favoured
by the founder(s).
Family businesses
• Ownership has been passed on from the founding entrepreneur to descendants.
• Typically, small to medium-sized enterprises (SMEs) but may be large (e.g. Ford, Walmart).
• The family may retain most shares while floating some shares on the stock market.
• Professional managers may be employed but ultimately the family remain in control.
• The need to retain family control may lead to rejecting high-risk strategies or those requiring
substantial external finance.
There are other types of organisation:
• Not-for-profit organisations (e.g., Mozilla). Frequently charitable foundations that exist to pursue a
social mission.
• Partnerships (e.g., law firms). Organisations owned and controlled by senior employees.
• Employee-owned firms (e.g., John Lewis). Ownership is spread among all the
employees. They may not be able to raise capital easily and may be more conservative in terms of
strategy.

CORPORATE GOVERNANCE
Corporate governance is concerned with the structures and systems of control by which managers are held
accountable to those who have a legitimate stake in an organisation.

GOVERNANCE CHAIN

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Managers and stakeholders are linked together via the governance chain. The governance chain shows the
roles and relationships of different groups involved in the governance of an organisation. In a small family
business, the governance chain is simple.
In large publicly quoted corporations, however, influences on governance
can be complex

SESSION 6: BUSINESS STRATEGY AND CORPORATE

STRATEGY

GAME THEORY
“Think out of the box”. It encourages an organisation to consider competitors likely moves and the
implications of these moves

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 SESSION : INTERNATIONAL STRATEGY
This chapter focuses on a kind of market development, operating in different geographical markets.
Many types of organizations expand internationally and face new customer needs and are challenged
by local economic, regulatory, political, and
cultural institutions that often differ substantially
from home. New small firms, like internet-based
start-ups, are also increasingly ‘born global’,
building international relationships right from the
start. For example, Spotify was created to become
international and worldwide from the very start.
Likewise, not-for-profit organizations like the Red
Cross and Doctors without Borders have been
working internationally from early on. Public-
sector organisations also must make choices about
collaboration, outsourcing and even competition
with overseas organisations. For example,
European Union legislation requires public service
organisations to accept tenders from non-national
suppliers.
INTERNATIONAL STRATEGY: refers to a
range of options for operating outside an
organisation’s country of origin.
GLOBAL STRATEGY: involves high coordination of extensive activities dispersed geographically
in many countries around the world.

INTERNATIONALISATION DRIVERS
Barriers to international trade and investment are now lower than they were before. Better
international legal frameworks mean that it is now less risky to deal with unfamiliar partners.
Improvements in communications – from cheaper air travel to the internet – and the spread of ideas
much easier around the world. New economic powerhouses such as China, India and Brazil are
generating new opportunities and challenges for business internationally.
There are some specific products which hold strong trade barriers.
Recent trade tensions make certain companies not welcome in some countries, like Huawei in the
USA and Facebook and Twitter in China. The COVID pandemic exposed many companies to the
vulnerability of global value chains and made some of them more regional instead.
The US discount retailer Walmart has learned the hard way that international markets are not only
very different from home but differ significantly from each other.
Given internationalisation’s complexity, international strategy should be underpinned by a careful
assessment of trends in each particular market.

YIP´S FRAMEWORK

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 - Market drivers -> standardization of the market characteristics
o Similar customer needs and tastes
o Global customers
o Transferable marketing
- Cost drivers -> operating costs can be reduced by operating internationally
o Increasing volume (scale economies)
o Internationalization is promoted where it is possible to take advantage of variations in
country-specific differences. It thus makes sense to locate the manufacture of clothing
in Africa where labour is still considerably cheaper, but to keep design activities in
cities such as New York or Paris, where fashion expertise is concentrated.
o Favorable logistics
- Government drivers
o Reduction of barriers to trade and investment
o The liberalisation and adoption of free markets
o Technology standardisation: Compatible technical standards make it easier for
companies to access different markets as they can enter many markets with the same
product or service without adapting to local idiosyncratic standards
- Competitive drivers
o Interdependence between countries
o The presence of globalised competitors increases the pressure to adopt a global
strategy in response because competitors may use one country’s profits to cross-
subsidise their operations in another

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GEOGRAPHIC SOURCES OF ADVANTAGE

A company entering a market from overseas typically starts with considerable disadvantages relative
to local competitors, which will usually have superior knowledge of the local market and its
institutions (liability of foreignness). A foreign entrant must therefore have significant firm-specific
competitive advantages for it to overcome these inherent advantages of local competitors. There are
two principal opportunities available: the exploitation of particular locational advantages, in the
company’s home country, and sourcing advantages overseas via an international value system.
Managers need to appraise these potential sources of competitive advantage carefully: if there are no
firm-specific or geographical competitive advantages, international strategy is liable to fail.

Locational advantage -> Michael Porter has proposed a four-pointed ‘diamond’ to explain why
some locations tend to produce firms with competitive advantages in some industries more than
others.
- Factor conditions: These refer to the ‘factors of production’ that go into making a product or
service (i.e., raw materials, land and labour). Factor condition advantages at a national level
can translate into general competitive advantages for national firms in international markets.
For example, the linguistic ability of the Swiss has traditionally provided a significant
advantage to their banking industry. Cheap energy has traditionally provided an advantage
for the North American aluminium industry:
- Home demand conditions: The nature of the domestic customers can become a source of
competitive advantage. Dealing with sophisticated and demanding customers at home helps
train a company to be effective overseas.
- Related and supported industries: Local ‘clusters’ of related and mutually supporting
industries can be an important source of competitive advantage. These are often regionally
based, making personal interaction easier. In northern Italy, for example, the leather footwear
industry, the leatherworking machinery industry, and the design services that underpin them
group together in the same regional cluster to each other’s mutual benefit.
- Firm strategy, industry structure and rivalry: German companies’ strategy of investing in
technical excellence gives them a characteristic advantage in engineering industries and
creates large pools of expertise. A competitive local industry structure is also helpful: if too
dominant in their home territory, local organisations can become complacent and lose
advantage overseas. Some domestic rivalry can be an advantage, therefore. For example, the
Swiss pharmaceuticals industry became strong in part because each company had to compete
with several strong local rivals.

The international value system -> as companies continue to internationalise, the country of origin
becomes relatively less important for competitive advantage. Here, the different skills, resources, and
costs of countries around the world can be systematically exploited in order to locate each element of

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the value chain in that country or region where it can be conducted most effectively and efficiently.
Large multinational companies often develop and manage complex global or regional supply chains
in this way. This may be achieved through both foreign direct investments and joint ventures but also
through global sourcing: purchasing services and components from the most appropriate suppliers
around the world, regardless of their location. For example, in the UK, for many years, the National
Health Service has been sourcing medical personnel from overseas to offset a shortfall in domestic
skills and capacity.
Locational advantages can be of different kinds. Facebook, for example, has located huge centres for
their servers in the northern part of Sweden not only because of the low-energy cooling costs due to a
cold climate, but because of local digital technology capabilities and skills and Sweden’s policy of
low CO2 emissions.
- Cost advantages: include labour costs, transportation and communications costs and taxation
and investment incentives. Labour costs are important. US and European firms, for example,
have moved much of their software programming tasks to India where a computer
programmer costs a US firm about one quarter of what it would pay for a worker with
comparable skills in the USA. As wages in India have risen, however, some IT firms have
started to move work to even more low-cost locations such as Thailand and Vietnam.
- Unique local capabilities: For example, leading European pharmaceuticals company GSK has
R&D laboratories in Boston and the Research Triangle in North Carolina in order to establish
research collaborations with prominent universities and hospitals in those areas

ME HE QUEDADO EN LA PAGINA 306

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