Strategic Management/

Business Policy
Power Point Set
#1:
Definitions of
Strategy

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

What Is Strategic Management About?

Understanding how firms create, capture, and sustain
competitive advantage.
Analyzing strategic business situations and formulating
strategic plans.
Implementing strategy and organizing the firm for
strategic success.

assess
environmental
factors

Identify
current
mission
and
strategic
goals

Strategy formulation Strategy implementation

Conduct
competitive
analysis:
strengths
weakness
opportunity
threats

Develop
specific
strategies:
corporate
business
functional

carry out
strategic
plans

maintain
strategic
control

assess
organisational
factors
64

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.

Key Characteristics Of Strategic Decisions

Important;
Typically, under some Uncertainty;
Involves Alternatives, Consequences, and Choice;
Significant Commitment of Resources; and
Not Easily Reversible.

Strategy
Strategy
Making
Design
or
Process?
StrategyMaking
Making:::Design
Designor
orProcess?
Process?
Strategy
Strategyas
asDesign
Design

Strategy
Strategyas
asProcess
Process

Planning
Planningand
and
rational
rationalchoice
choice

Many
Manydecision
decisionmakers
makers
responding
respondingto
tomultitude
multitudeof
of
external
externaland
andinternal
internalforces
forces

INTENDED
INTENDED
STRATEGY
STRATEGY

EMERGENT
EMERGENT
STRATEGY
STRATEGY

REALIZED
REALIZEDSTRATEGY
STRATEGY
Mintzbergs
Critique
of
Formal
Strategic
Planning:
Mintzbergs
Critique
of
Formal
Strategic
Planning:
Mintzbergs
Critique
of
Formal
Strategic
Planning:
The
fallacy
of
prediction
the
future
isisunknown
The
fallacy
of
prediction
the
future
The
fallacy
of
prediction

the
future
isunknown
unknown
The
fallacy
of
detachment
-impossible
to
divorce
formulation
from
The
fallacy
of
detachment
-impossible
to
divorce
formulation
from
The
fallacy
of
detachment
-impossible
to
divorce
formulation
from
implementation
implementation
implementation
The
fallacy
of
formalization
--inhibits
flexibility,
spontaneity,
The
fallacy
--inhibits
flexibility,
spontaneity,
of
formalization
The
fallacy
of
formalization
--inhibits
flexibility,
spontaneity,
intuition
and
learning.
intuition
and
learning.
intuition and learning.
7

The
The
Evolution
of
Strategic
Management
TheEvolution
Evolutionof
ofStrategic
StrategicManagement
Management

DOMINANT
DOMINANT
THEME
THEME
MAIN
MAIN
ISSUES
ISSUES
CONCEPTS
CONCEPTS
&&
TECHNIQUES
TECHNIQUES

IMPLEMENTIMPLEMENTATION
ATION

1950s
1950s

1960s
1960s

Early-mid
Early-mid
1970s
1970s

Late1970s
Late1970s
early
early1980s
1980s

Budgetary
Budgetary
planning
planning&&
control
control

Corporate
Corporate
planning
planning

Corporate
Corporate
strategy
strategy

Analysis
Analysisofof
industry
industry&&
competition
competition

Financial
Financialcontrol
control

Planning
Planninggrowth
growth

DiversificaDiversifica- Positioning
Positioning
ion
ion

Competitive
Competitive
advantage
advantage

Budgeting
Budgeting
project
projectappraisal
appraisal

Forecasting &
Forecasting &
investment
investment
planning
planning

Portfolio
Portfolio
planning.
planning.
Synergy
Synergy
market
market
share
share

Resource
Resource
analysis.
analysis.
Case
Case
competences
competences

Emphasis
Emphasison
on
financial
financial
management
management

Rise
Riseofof
corporate
corporateplanning
planning
departments
departments
&&formal
formal
planning
planning

DiversifiIndustry/market
DiversifiIndustry/market
cation.
selectivity.
cation.
selectivity.
Quest
for
Active
Quest for
Activeasset
asset
global
management
global
management
market
marketshare
share

Analysis of
Analysis of
industry
industry&&
competition
competition

Late
Late1980s
1980s
early
1990s
early 1990s

Late
Late1990s
1990s
early
2000s
early 2000s

Quest
Questfor
for
competitive
competitive
advantage
advantage

Strategic
Strategic
innovation
innovation
The New
The New
Economy
Economy
Innovation
Innovation&&
knowledge
knowledge
Dynamic
Dynamic
sources
sourcesofof
advantage
advantage
Knowledge
Knowledge
management
management
cooperation
cooperation

Restructuring
Restructuring Virtual
VirtualorgaorgaBPR.
nization.
BPR.
nization.
Refocusing
Refocusing Alliances
Alliances
Outsourcing
Outsourcing Quest
Questfor
for
critical
criticalmass
mass

The
The
Basic
Framework
TheBasic
BasicFramework
Framework
Strategy:
Strategy:
the
Link
between
the
Strategy:the
theLink
Linkbetween
betweenthe
the
Firm
Firm
and
its
Environment
Firmand
andits
itsEnvironment
Environment
THE
THE FIRM
FIRM
Goals
Goals&&
Values
Values
Resources
Resources&&
Capabilities
Capabilities
Structure
Structure&&
Systems
Systems

STRATEGY
STRATEGY
STRATEGY
STRATEGY

THE
THE
INDUSTRY
INDUSTRY
ENVIRONMENT
ENVIRONMENT
Competitors
Competitors
Customers
Customers
Suppliers
Suppliers

How Does It Compare to Other

Business Classes?
Macro level
environment

Task
environment

Finance

Mktg.

Strategy
Acctg.

Oper
.

H.R.

The
firm
10

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
11

Task Environment
Regulatory Groups:
Government
Unions
Special Interest Groups
Technology:
Rate of Development
Substitutes
Stage of Product or Industry
12

The Role of Strategy In Business is to Generate and Sustain Value

via the Linkages Between Position, Resources, and Organization

Positioning

Resources
& Capabilities

Organization

13

Positioning
Scope of the Firm:
Geographic Scope
Product-market Scope: Choice of businesses
(corporate portfolio analysis)
Product Market Positioning
business
Vertical integration
decisions

within a

14

Resources
Tangible Resources
e.g., physical capital

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

Intangible Resources
e.g., trademarks, know-how
15

Organization
Structure
Formal Definition of authority
Conflict Resolution

Systems
Rules, Routines, Evaluation and rewards

Processes
Informal communication, networks, recruitment
16

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 longterm 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)
17

Abells Framework for Defining the Business

Who is being
satisfied?

What is being
satisfied?

Customer
Groups

Customer
Needs

Definition
of Business

How are
customer needs
satisfied?
Distinctive
Competencies
18

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

19

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.

20

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)

21

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.

22

Stakeholders and the Enterprise

Contributions

Inducements

Contributions

Inducements

FIGURE 2.1
Copyright 2001 Houghton Mifflin Company. All rights reserved.

23 2-2

Key Drivers of Value Creation and Sustainable

Competitive Advantage:
Generating economic value can be accomplished
through:
REVENUE drivers
COST drivers
RISK drivers
24

Value and Cost Drivers

Figure 2.5

1-25

Sources
Sources of
of Superior
Superior Profitability
Profitability
INDUSTRY
INDUSTRY
ATTRACTIVENESS
ATTRACTIVENESS
RATE
RATEOF
OFPROFIT
PROFIT
ABOVE
ABOVETHE
THE
COMPETITIVE
COMPETITIVE
LEVEL
LEVEL

How
How do
dowe
we
make
make
money?
money?

Which
Which
businesses
businesses
should
shouldwe
webe
be
in?
in?

CORPORATE
CORPORATE
STRATEGY
STRATEGY

COMPETITIVE
COMPETITIVE
ADVANTAGE
ADVANTAGE

How
Howshould
should
we
wecompete?
compete?

BUSINESS
BUSINESS
STRATEGY
STRATEGY
26

The Levels of Strategy

C o r p o r a te
H e a d q u a r te r s

Corporate - General Electric

Business - Home Appliances

Functional - e.g., Production

D iv is io n A

D iv is io n B

D iv is io n C

R&D

R&D

R&D

HR

HR

HR

F in a n c e

F in a n c e

F in a n c e

P r o d u c tio n

P r o d u c t io n

P r o d u c tio n

M k t g / S a le s

M k t g / S a le s

M k tg /S a le s

27

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.

28

An
An optimal
optimal decision
decision
isis possible
possible
All
All relevant
relevant information
information
isis available
available
All
All relevant
relevant information
information isis
understandable
understandable
All
All alternatives
alternatives are
are known
known

Managers
Managers as
as
decision
decision makers
makers
Assumptions
Assumptions of
of the
the
Rational
Rational Model
Model

Rational
Rational
decision
decision
making
making

All
All possible
possible outcomes
outcomes known
known
9

BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E

McGraw-Hill Australia 2001

29

Time
Time constraints
constraints
Limited
Limited ability
ability to
to
understand
understand all
all factors
factors
Inadequate
Inadequate base
base
of
of information
information
Limited
Limited memory
memory of
of
decision-makers
decision-makers

Managers
Managers as
as
decision
decision makers
makers
Satisficing
Satisficing

Satisficing
Satisficing
decision
decision
making
making

Poor
Poor perception
perception of
of factors
factors
to
to be
be considered
considered
in
in decision
decision process
process
10

BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E

McGraw-Hill Australia 2001

30

Improving Strategic
Decision-Making

1-40

Illusion
of
Control
Prior
Hypothesis
Bias

Reasoning
by
Analogy

Escalating
Commitment

Representativeness
31 Copyright

Symptoms of Groupthink and How to

Prevent It
Symptoms
Groupthink

Illusion of invulnerability
Belief in the inherent morality of the group
Stereotyped views of members of
opposing groups
Application of pressure to members who
express doubts about the groups shared
allusions or question the validity of
arguments proposed
Practice of self-censorship
Appointment of mindguards

Copyright 2005 by TheMcGraw-Hill Companies, Inc. All rights reserved.

14-25

32

Using Conflict-Inducing Decision-Making

Techniques in Case Analysis
Devils
Advocacy

Dialectical
Inquiry

Groupthink
Use conflict-inducing decision-making techniques to
help prevent groupthink and lead to better decisions.
Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

14-24

33

Two Conflict-Inducing Decision-Making

Processes

Adapted from Exhibit 14.4 Two Conflict-Inducing Decision-Making Processes

Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

14-29

34

Our Learning Goals:

Pushing Down Through Blooms Taxonomy

1. Knowledge: remember
remember
material;
material; know
know terms,
terms, facts,
facts,
procedures,
procedures, basic
basic concepts
concepts

2. Comprehension:

grasp
grasp meaning;
meaning; understand
understand
facts,
facts, interpret
interpret charts,
charts,
translate
translate verbal
verbal to
to math
math
estimate
estimate consequences
consequences

3. Application: use
use

material
material in
in new
new situations;
situations;
apply
apply concepts
concepts to
to real
real
situations,
situations, follow
follow aa procedure
procedure

4. Analysis: break
break material
material

into
into components
components &
& understand
understand
structure;
structure; recognize
recognize logical
logical
fallacies,
fallacies, distinguish
distinguish fact
fact and
and
inference,
inference, evaluate
evaluate relevancy
relevancy of
of
data
data

5. Synthesis: integrate
integrate parts
parts

to
to make
make a
a new
new whole,
whole, integrate
integrate
learning
learning to
to solve
solve a
a problem
problem

6. Evaluations: judge
judge logical
logical
consistency,
consistency, judge
judge whether
whether
conclusions
conclusions are
are supported
supported by
by
facts
facts

35

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.

36