Strategic Management/

Business Policy
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

2
 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.

3
 assess Strategy formulation Strategy implementation
environmental
factors

Conduct
Identify Develop
competitive
current specific
analysis: carry out maintain
mission strategies:
•strengths strategic strategic
and •corporate
•weakness plans control
strategic •business
•opportunity
goals •functional
•threats

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.
5
 Key Characteristics Of Strategic Decisions

Important;

Typically, under some Uncertainty;

Involves Alternatives, Consequences, and Choice;

Significant Commitment of Resources; and

Not Easily Reversible.

6
 Strategy
StrategyMaking
Strategy Making:::Design
Making Designor
Design orProcess?
or Process?
Process?
Strategy
Strategyas
asDesign
Design Strategy
Strategyas
asProcess
Process

Planning
Planningand
and Many
Manydecision
decisionmakers
makers
rational
rationalchoice
choice responding
respondingtotomultitude
multitudeofof
external
externaland
andinternal
internalforces
forces

INTENDED
INTENDED EMERGENT
EMERGENT
STRATEGY
STRATEGY STRATEGY
STRATEGY
REALIZED
REALIZEDSTRATEGY
STRATEGY
Mintzberg’s
Mintzberg’s Critique
Critique of
ofFormal
FormalStrategic
Strategic Planning:
Planning:
Mintzberg’s
•The Critique
fallacy of of Formal
prediction – Strategic
the future Planning:
isisunknown
•The
•The fallacy
fallacy of
of prediction
prediction––the
the future
future isunknown
unknown
•The
•The fallacy
fallacy of
of detachment
detachment -- impossible
----impossible to
todivorce
divorce formulation
formulationfrom
from
•The fallacy
implementation of detachment impossible to divorce formulation from
implementation
implementation
•The
•The fallacy
fallacy of
of formalization
formalization --inhibits
--inhibits flexibility,
flexibility, spontaneity,
spontaneity,
•The fallacy
intuition and of formalization
learning. --inhibits flexibility, spontaneity,
intuition and learning.
intuition and learning. 7
 The
TheBasic
The BasicFramework
Basic Framework
Framework
Strategy:
Strategy:the
Strategy: theLink
the Linkbetween
Link betweenthe
between the
the
Firm
Firmand
Firm andits
and itsEnvironment
its Environment
Environment

THE
THEFIRM
FIRM
THE
THE
Goals
Goals&&
Values INDUSTRY
INDUSTRY
Values
STRATEGY
ENVIRONMENT
ENVIRONMENT
Resources
Resources&& STRATEGY
STRATEGY
STRATEGY
Capabilities
Capabilities Competitors
Competitors
Customers
Customers
Structure
Structure&& Suppliers
Suppliers
Systems
Systems

9
How Does It Compare to Other
Business Classes?
Macro level
Task
environment
environment

Finance

Mktg. Strategy Oper

.

Acctg. 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
Organization
& Capabilities

13
 Positioning

Scope of the Firm:

Geographic Scope

Product-market Scope: Choice of businesses

(corporate portfolio analysis)

Product Market Positioning within a

business

Vertical integration
decisions 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
other’s behavior” (Thomas Schelling The Strategy of Conflict)

“Strategy can be defined as the determination of the basic long-

term 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 organization’s

major goals, policies, and action sequences into a cohesive whole.
A well formulated strategy helps to marshal and allocate an
organization’s 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
Abell’s Framework for Defining the Business

Who is being What is being

satisfied? satisfied?

Customer Customer
Groups Definition Needs
of Business

How are
customer needs
satisfied?
Distinctive
Competencies

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 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 firm’s 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 Manager’s role in balancing expectations
Business Roundtable:
“Balancing the shareholder’s 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 firm’s 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
Which
Which CORPORATE
CORPORATE
RATE
RATEOFOFPROFIT
PROFIT businesses
businesses STRATEGY
STRATEGY
ABOVE
ABOVETHE should
THE shouldwe
webe
be
COMPETITIVE
COMPETITIVE in?
LEVEL
in?
LEVEL

How
How do
dowe
we
make
make
money? COMPETITIVE
COMPETITIVE
money?
ADVANTAGE
ADVANTAGE

How
Howshould
should BUSINESS
BUSINESS
we STRATEGY
wecompete?
compete? STRATEGY

26
 The Levels of Strategy

C o r p o r a te
Corporate - General Electric H e a d q u a r te r s

D iv is io n A D iv is io n B D iv is io n C
Business - Home Appliances
R&D R&D R&D

HR HR HR
Functional - e.g., Production 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 t io 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
 Managers
Managers as
as
An
An optimal
optimal decision
decision
isis possible
decision
decision makers
makers
possible
Assumptions
Assumptions of
of the
the
All
Rational
Rational Model
Model
All relevant
relevant information
information
isis available
available

All
All relevant
relevant information
information isis
Rational
Rational
understandable
understandable decision
decision
All
All alternatives
alternatives are
are known
known
making
making
All
All possible
possible outcomes
outcomes known
known
9 BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E © McGraw-Hill Australia 2001
29
 Managers
Managers as
as
Time
Time constraints
constraints
decision
decision makers
makers
Satisficing
Satisficing
Limited
Limited ability
ability to
to
understand
understand all
all factors
factors

Inadequate
Inadequate base
base ‘Satisficing’
‘Satisficing’
of
of information
information
decision
decision
Limited
Limited memory
memory of
of making
making
decision-makers
decision-makers

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
 1-40
Improving Strategic
Decision-Making

Illusion
of
Control

Prior Reasoning
Hypothesis by
Bias Analogy

Escalating Representa-
Commitment tiveness

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 group’s shared
allusions or question the validity of
arguments proposed
• Practice of self-censorship
• Appointment of mindguards

Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. 14-25

32
 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.

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