Strategy

Management and
Business Policy
Introduction
• Investors stake their money into a firm in order to earn a return
on their investments.
• Returns are often measured in terms of accounting figures i.e.
return on assets, return on equity, or return on sales.
• In smaller, new venture firms, returns are sometimes measured
in terms of the amount and speed of growth.
• Firms without a competitive advantage earn, at best, average
returns.
 Whose responsibility, is it?
And why it matters
• The investors give the responsibility to the directors and
subsequently managers (CEO) of a firm to earn a return on their
investment.
• Inability to earn at least average returns results first in decline and,
eventually, failure. Failure occurs because investors withdraw
their investments from those firms earning less-than-
average returns.
• Firms with a competitive advantage will aim to earn Above –
Average Returns.
What is strategic management?
• Most firms use the strategic management process as the foundation for the
commitments, decisions, and actions they will take when pursuing Strategic
Competitiveness and Above-Average Returns.
• Strategic competitiveness is achieved when a firm successfully
formulates and implements a value-creating Strategy.
• A Strategy is an integrated and coordinated set of commitments and actions
designed to gain a Competitive Advantage.
• When choosing a strategy, firms make choices among competing alternatives as
the pathway for deciding how they will pursue Strategic Competitiveness.
• The chosen strategy indicates what the firm will do as well as what the firm will
not do.
STRATEGIC MANAGEMENT
DEFINED
• Strategic management is that set of managerial decisions and
actions that determines the long-run performance of a
corporation.
• The study of strategic management, therefore, emphasizes the
monitoring and evaluating of external opportunities and
threats in light of a corporation’s strengths and weaknesses.
• Strategic management, as a field of study, incorporates the
integrative concerns of business policy with a heavier
environmental and strategic emphasis.
 STRATEGIC MANAGEMENT DEFINED
Cont’d
• The term strategic management underlines the importance of managers with
regard to strategy to formulate them as strategies do not happen just by
themselves.
• Strategy involves people especially managers who decide and implement
strategy.
• Therefore, Strategic Management includes understanding the Strategic
Position of an organization, Strategic Choices for the future and managing
Strategy in Action.
• Strategy is the direction and scope of an organization over the long-term,
which achieves advantage in a changing environment through its
configuration of resources and competences with the aim of fulfilling
stakeholder expectations. (Scholes- Exploring Corporate Strategy)
 Strategic management process
• The Strategic Management Process is the full set of commitments, decisions,
and actions required for a firm to achieve strategic competitiveness and earn
above-average returns.
• The firm’s first step in the process is to analyze its External Environment and
Internal Organization to determine its resources, capabilities, and core
competencies - the sources of its “strategic inputs.”
• With this information, the firm develops its Vision and Mission and formulates
one or more strategies.
 The External
Environment
Strategic
Vision
Management
Inputs

Mission
The Internal
Organization process

Strategy Formulation Strategy Implementation

Business-Level Competitive Corporate- Corporate Organizational
Strategy Rivalry and Level Strategy Governance Structure and
Actions

Competitive Controls
Strategic
Dynamics Cooperative Strategic
Leadership
Merger and International Strategy Entrepreneurship
Acquisition Strategy
Strategies

Strategic
Outcomes

Competitiveness
Above – Average
Returns
Feedback
 Vision
• A vision or strategic intent is the desired future state of the organization.
• It is an aspiration around which a strategist, perhaps CEO, might seek to focus
the attention and energies of members of the organization.
• A vision is a picture of what the firm wants to be and, in broad terms, what
it wants to ultimately achieve.
• A vision statement tends to be relatively short and concise, making it easily
remembered.
• Examples of vision statements include the following:
 To be the leading supplier of mining equipment in Zambia.
 To be a world class provider of tuition to undergraduate and post graduate
students.
Mission
• A mission is a general expression of the overall purpose of the organization, which is in
line with the values and expectations of major stake-holders.
• It answers the challenging question: What Business Are We In?
• A mission should establish a firm’s individuality and should be inspiring and relevant to all
stakeholders.
• Together, vision and mission provide the foundation the firm needs to choose and
implement one or more strategies.
• Even though the final responsibility for forming the firm’s mission rests with the CEO, the
CEO and other top-level managers tend to involve a larger number of people in forming the
mission.
• Example of mission statement:
 To provide cost effective mining solutions, products, and services that exceed the
expectations of our customers.
 Strategy terms
Term Definition A personal example

Mission Overriding purpose in line with the values or Be healthy and fit
expectations of stakeholders

Vision or Strategic intent Desired future state: the aspiration of the organization To run the London Marathon

Goal General statement of aim or purpose Lose weight and strengthen muscles

Objective Quantification (if possible) or more precise statement of Lose 5 kilos by 1 September and run marathon next year
the goal

Strategic capability Resources, activities and processes. Some will be unique Proximity to a fitness centre, a successful diet
and provide ‘competitive advantage’

Strategies Long-term direction Exercise regularly, compete in marathons locally, stick to

appropriate diet

Business model How product, service and information ‘flow’ between Associate with a collaborative network (e.g. join a
participating parties running club)

Control The monitoring of action steps to: Monitor weight, run and measure times: if possible
• Assess effectiveness of strategies and actions. satisfactory, do nothing; if not, consider other strategies
Modify as necessary strategies and/or actions and actions
 The Benefits of Strategic
Management
• Research has revealed that organizations that engage in strategic
management generally outperform those that do not.
• A survey of nearly 50 corporations in a variety of countries and industries
found the 3 most highly rated benefits of strategic management to be:
Clearer sense of strategic vision for the firm
Sharper focus on what is strategically important
Improved understanding of a rapidly changing
environment
Three questions which characterize
strategic management
To be effective, however, strategic management need not always be a
formal process. It can begin with three (3) basic questions:
1. Where is the organization now? (Not where do we hope it is!)
2. If no changes are made, where will the organization be in 1
year? 2 years? 5 years? 10 years? Are the answers acceptable?
3. If the answers are not acceptable, what specific actions should
management undertake? What are the risks and benefits
involved?
 MAJOR ELEMENTS OF STRATEGIC
MANAGEMENT

Strategic management includes the following elements:

Environmental scanning (both external and internal)
Strategy formulation (strategic or long-range planning)
Strategy implementation
Evaluation and control
ANALYZING A CASE STUDY

 The purpose of the case study is to let the student apply the
concepts of strategic management to a real or hypothesized
situation facing a specific company.
 To analyse a case study, therefore, you must examine closely
the issues with which the company is confronted.
 Most often you will need to read the case several times – once
to grasp the overall picture of what is happening to the
company and then several times more to discover and grasp
the specific problems.
Eight (8) steps in Conducting a
detailed case study analysis
1. The history, development, and growth of the company over time.
2. The identification of the company’s internal strengths and
weaknesses.
3. The nature of the external environment surrounding the
company.
4. A SWOT analysis.
case study analysis Cont’d
5. The kind of corporate-level strategy pursued by the
company.
6. The nature of the company’s business-level strategy.
7. The company’s structure and control systems and how they
match its strategy.
8. Recommendations.
ENVIRONMENTAL SCANNING
• This is the monitoring, evaluating and disseminating of information from the
external and internal environments to key people within the corporation.
• Its purpose is to identify strategic factors – those external and internal
elements that will determine the future of the corporation.
• The simplest way to conduct environmental scanning is through SWOT
analysis.
• SWOT is an acronym used to describe those particular Strengths,
Weaknesses, Opportunities and Threats that are strategic factors for a specific
company.
The external environment
This environment consists of variables (Opportunities and Threats) that are
outside the organization.
These variables form the context within which the organization exists.
The key environmental variables may be:
general forces and trends within the overall societal environment
(economic, technological, political-legal, socio-cultural forces) or
specific factors that operate within an organization’s task environment –
often called its industry (shareholders, suppliers, employees/labour unions,
competitors, trade associations, communities, creditors, customers, special
interest groups, governments).
 The internal environment
• The internal environment of a corporation consists of variables
(Strengths and Weaknesses) that are within the organization itself
and are usually within the short-run control of top management.
• These variables form the context in which work is done.
• They include the corporation’s structure, culture and resources.
• Key strengths form a set of core competencies that the corporation
can use to gain competitive advantage.
 STRATEGY FORMULATION
• This is the development of long-range plans for the effective
management of environmental opportunities and threats, in light of
corporate strengths and weaknesses.

• It includes defining the corporate mission, specifying

achievable objectives, developing strategies, and setting
policy guidelines
 Mission
• An organization’s mission is the purpose or reason for the
organization’s existence.
• It tells what the company is providing to society, either a service or a
product.
• A well-conceived mission statement:
defines the fundamental, unique purpose that sets a
company apart from other firms of its type and
identifies the scope of the company’s operations in terms
of products and services offered and markets served.
Objectives
• These are the end results of planned activity.
• They state what is to be accomplished by when and should be quantified if
possible.
• The achievement of corporate objectives should result in the fulfilment of
a corporation’s mission.
• In effect, this is what society gives back to the corporation when the
corporation does a good job of fulfilling its mission.
Objectives Cont’d
Some of the areas in which a corporation might establish its goals
and objectives are:
Profitability (e.g. net profits)
Efficiency (e.g. low costs, etc.)
Growth (e.g. increase in total assets, sales, etc.)
Shareholder wealth (dividends plus stock price appreciation)
Utilization of resources ( e.g. return on investment or equity)
Reputation (being considered a “top” firm)
Contributions to employees (employment security, wages, diversity)
Contributions to society (taxes paid, participation in charities etc)
Strategies

• A strategy of a corporation forms a comprehensive master plan

stating how the corporation will achieve its objectives and fulfil
its mission.
• It maximizes competitive advantage and minimizes competitive
disadvantage.
• The typical business firm usually considers 3 types of strategy:
Corporate, Business and Functional.
1. Corporate Strategy
• This describes a company’s overall direction in terms of its
general attitude toward growth and the management of its
various businesses and product lines.

• Corporate strategies typically fit within the 3 main categories of

stability, growth and retrenchment.
 Corporate-Level Strategy.

• Corporate-level strategy is senior management's game plan for

directing and running the organization as a whole.
• It cuts across all of an' organization's activities-its different
businesses, divisions, product lines, and technologies.
• The task of developing a corporate strategy has three elements:
 ELEMENT 1: Managing The Scope &
Mix of The Firm’s Activities

• Developing plans for managing the scope and mix of the firms' various activities in
order to improve corporate performance.
• Managing the business portfolio requires decisions' and actions regarding when and
how the enterprise should get into new businesses.
• which existing businesses the company should get out of (and whether it should do
so quickly or gradually),
• The portfolio management plan may, in addition, involve designating a common
strategic theme to be pursued by all of the company's lines of business.
 Providing for coordination among
different businesses in the portfolio.

Coordination of interrelated activities allows a diversified firm to;

 enhance the competitive strength of its business units and
 makes overall corporate strategy more than just a collection of
the action plans of independent subunits.
Establishing Investment Priorities & Allocating Corporate
Resources Across The Company's Different SBUs.

• Decisions about how much of the corporate investment budget each

organizational unit will get and actions to control the pattern of corporate
resource allocation.
• These decisions and actions serve to channel resources out of areas where
earnings potentials are lower into areas where they are higher.
• The portfolio management actions of corporate officers in entering or exiting
certain markets.
 2. Business Strategy
• This usually occurs at the business unit or product level, and it
emphasizes improvement of the competitive position of a
corporation’s products or services in the specific industry or market
segment served by that business unit.
• Business strategies may fit within the 2 overall categories of
competitive or cooperative strategies.
• Competitive strategies include differentiation, cost leadership
and focus.
3. Functional Strategy
• This is the approach taken by a functional area to achieve corporate and
business unit objectives and strategies by maximizing resource
productivity.
• It is concerned with developing and nurturing a distinctive competence to
provide a company or business unit with a competitive advantage.
• Examples of R&D functional strategies are
Technological followership (imitate the products of other companies)
and
Technological leadership (pioneer an innovation).
• Business firms use all 3 types of strategy simultaneously.
HIERARCHY OF STRATEGY

• A hierarchy of strategy is the grouping of strategy types by level in the

organization.
• This hierarchy of strategy is a nesting of one strategy within another so
that they complement and support one another.
• Functional strategies support business strategies, which in turn, support
corporate strategy(ies).
• Just as many firms often have no formally stated objectives, many firms
have unstated, incremental or intuitive strategies that have never been
articulated or analyzed.
 Policies
• These are broad guidelines for decision making that links the
formulation of strategy with its implementation.
• Companies use policies to make sure that employees throughout
the firm make decisions and take actions that support the firm’s
mission, objectives and strategies.
• A company may develop policies in areas like Recruitment,
disbursement of funds, a policy on procurement of materials, a
policies on Health and safety, a policy on CSR etc.
INTERNAL ENVIRONMENT
ANALYSIS
Introduction
Strategic analysis of any Business enterprise involves two
stages: Internal and External analysis.

Internal analysis is the systematic evaluation of the key

internal features of an organization.
Four broad areas need to be
considered for internal analysis
The organization’s resources, capabilities.
The way in which the organization configures
and co-ordinates its key value-adding activities.
The structure of the organization and the
characteristics of its culture.
The performance of the organization as
measured by the strength of its products.
 Resources
Resources are assets employed in the activities and processes
of the organization.
They can be tangible or intangible.
They can be obtained externally (organization-addressable)
or internally generated (organization-specific).
They can be specific and non-specific:
Specific resources can only be used for highly specialized
purposes and are very important to the organization in adding value
to goods and services.
Assets that are less specific are less important in adding value, but
are more flexible.
Resources fall within several categories:
Human
Financial
Physical
Technological
Informational

A resource audit would include an evaluation of

resources in terms of availability, quantity and
quality, extent of employment, sources, control
systems and performance.
General Competences/capabilities
They are assets like industry-specific skills, relationships
and organizational knowledge which are largely intangible
and invisible assets.
Competences and capabilities will often be internally
generated, but may be obtained by collaboration with
other organizations.
Certain competences are likely to be common to
competing businesses within a global industry or strategic
group.
Core Competences/Distinctive Capabilities
Core competences or distinctive capabilities are
combinations of resources and capabilities which are unique
to a specific organization and which are responsible for
generating its competitive advantage.
Kay (1993) identified four potential sources of Core
competences:
Reputation
Architecture (i.e., internal and external relationship)
Innovation
Strategic assets
Criteria to evaluate Core Competences
Complexity: How elaborate is the bundle of resources and
capabilities which comprise the core competence?
Identifiability: How difficult is it to identify?
Imitability: How difficult is it to imitate?
Durability: How long does it to be replaced by an alternative
competence?
Superiority: Is it clearly superior to the competences of other
organizations?
Adaptability: How easily can the competence be leveraged or
adapted?
Customer orientation: How is the competence perceived by
customers and how far is it linked to their needs?
 Resources: Capabilities: Core competence
human, financial, Industry-specific Distinctive and superior
physical, skills, relationships, skills, technology Perceived
technological, + organizational = relationships, customer
legal, informational knowledge knowledge and benefits/value
Intangible reputation of the firm added
Tangible and and invisible Unique, and
visible assets assets difficult to copy

Inputs to Integration of
the firm’s resources into
processes value-adding
activities
Not all capabilities are core Denotes feedback
competences – only those loop
that add greater value than denotes core competence
those of competitors development

The relationships between resources, capabilities and core

competence
Global Value Chain Analysis
Competitive advantage depends on the ability of the
organization to organize its resources and value-adding
activities in a way that is superior to its competitors.

Value chain analysis is a technique developed by Porter

(1985) for understanding an organization’s value-adding
activities and relationship between them.
Value can be added in two ways:
By producing products at a lower cost than competitors
By producing products of greater perceived value than
those of competitors.

Porter extended value chain analysis to the value system,

analysis of the relationship between the organization, its
suppliers, distribution channels and customers.
 The Value Chain
The value chain is the chain of activities which
results in the final value of a business’s products.

Value added, or margin is indicated by sales

revenue minus costs.

Porter divided internal parts of organization into

primary and support activities
Primary activities are those that directly
contribute to production of good or services
and organization’s provision to customer.

Support activities are those that aid

primary activities, but do not themselves add
value.
The Firm as a Value Chain
Support Activities

Materials Management
Human Resources
Information Systems
Company Infrastructure

R&D Production Marketing & Sales Service

Primary Activities
Certain activities or combinations of activities are likely to
relate closely to the organization’s core competences,
termed core activities. They:
Add the greatest value.
Add more value than the same activities in competitors’
value chains.
Relate to and reinforce core competences.

Other value chain activities relate to capabilities, but do not

add greater value than competitors and therefore do not
relate to core competence.
 The Value System
The value chain of an individual organization provide
an incomplete picture of its ability to add value.
Many value-adding activities are shared between
organizations often in the form of a collaborative
network.
As organizations identify and concentrate on their core
competences and core activities, they increasingly
outsource activities to other business for whom such
activities are core.
The value system is the chain of activities from supply
of resources through to final consumption of a product.

The total value system, in addition to the organization’s

own value chain, can consists of upstream linkages with
suppliers and downstream linkages with distributions
and customers.

The value system is a similar concept to that of the

supply chain and illustrates the interactions between an
organization, its suppliers, distribution channels and
customers.
 Distribution
Supplier Competitor channel
Customers

Distribution
Supplier Organization Customers
channel

Distribution
Supplier Competitor channel
Customers

The Value System

 The “Global” Value Chain
The configuration of an organization’s activities relates
to where and in how many nations each activities in the
value chain is performed.
Co-ordination is concerned with the management of
dispersed international activities and the linkages between
them.
Managers must examine the current configuration of
value-adding activities and the extent and methods
of co-ordination as part of their strategic analysis,
which may determine possibilities for reconfiguration or
improving co-ordination.
A global business has two broad choices of
1. configuration:
Concentration of the activity in a limited number of
locations to take advantage of benefits offered by those
locations.
Dispersion of the activity to a large number of locations.
Change in the business environment (e.g.,
technological change) may well lead to changes over
time in the configuration that gives greatest
competitive advantage.
2. CO-ORDINATION:
Co-ordination is essentially about overseeing the complexity of
the organization’s configuration such that all value-adding
parts of the business act in concert with each other to
facilitate an effective overall synergy.
Those business that overcome the potential difficulties of co-
ordination are those that sustain the greatest competitive
advantage.
Analysis of configuration and methods of co-ordination
assists in the process of understanding current competences
and identifying the potential for strengthening and adding to
them.
 Core
competences

Core
activities

Value
chain

Configuration Co-ordination

Internal External
Concentration Dispersion
co-ordination co-ordination
Internal External
Internal linkages linkages
activities
Value-adding Suppliers Channels
External activities Customers
activities
Value system

Managing the value system

https://www.cascade.app/blog/porters-5-forces. – PORTERS 5 FORCES MODEL.

https://www.businessnewsdaily.com/5446-porters-five-forces.html. - PORTERS 5
FORCES MODEL.

https://corporatefinanceinstitute.com/resources/management/boston-consulting-
group-bcg-matrix/ - BCG MATRIX

PORTERS 5 FORCES MODEL CASE STUDIES:-

https://365financialanalyst.com/knowledge-hub/business-analysis-and-
strategy/porters-5-forces-analysis-of-walmart-a-practical-example/

https://www.digitalbizmodels.com/blog/strategy-porters-five-forces

https://www.studysmarter.co.uk/explanations/business-studies/business-case-
studies/porters-five-forces-apple/