Business Policy

Strategy Formulation
Topic 1: The Concept of Strategy and the
Strategic Management Process
 Lecture Plan
• What is a strategy?
• The strategic management process
• Why strategic management is an ongoing
process
• Who performs the tasks of SM?
• Benefits of a strategic approach
 What is a strategy?
• ‘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 these goals’’
» Chandler

• ‘a commitment to undertake one set of actions

rather than another’
» Oster
 What is a Strategy? (2)

• ‘...the “game plan” management has for

positioning the company... entails choice
among alternatives and signals
organisational commitment to specific
markets, competitive approaches, and ways
of operating.’
» Thomson and Strickland
 The strategy
Corporate
pyramid
Business Influence

Function
Operating

•Uniting the strategy-making effort through

vertical and horizontal linkages.
•Co-ordination through mutually reinforcing
vision, objectives & strategies.
 Different Levels of Strategy

• Corporate - what business?

• Business - how to compete in each business
• Functional - in support of business level
 The Strategic Management Process

Analyze Identify
Environment opps / threats

Identify Formulate
current Strategies
SWOT ANALYSIS
mission,
objectives
& strategies Implement
Analyze Identify
Resources strengths & Strategies
weaknesses

Evaluate
Results

‘Management’, Robbins, S. & Coultar, M. 1996p. 259

Strategy Making - Process or Event?

• Strategy making is an ongoing process

• Boundaries between tasks:conceptual not
real
• Managers have many other responsibilities
• Crafting/ implementing happens erratically
 Intended and Adaptive Strategy

‘strategy is a combination of planned actions

and on-the-spot adaptive reactions to freshly
developing industry and competitive events.’

Respond to external/internal environment

Emergent Strategy
Who Performs the five tasks?
• CEO and other managers
• Strategic planners
• Board of directors
 The Three Strategy Making
Tasks
• Develop a strategic vision/ business mission
• Set objectives
• Craft a strategy
 ‘Chesire Puss’ she (Alice) began ...
‘Would you please tell me which way I
ought to go from here’

‘That depends on where you want to get

to,’ said the cat.

Lewis Carroll

‘If you don’t know where you’re going,

any old road will take you there’.
Anonymous
 Defines the current boundaries
Defines the business position
-’Who are we?’
Mission - ‘What do we do?’

Present
What Business are you in: Coca
Cola
– soft drinks?
Competition is Pepsi, Finches
– beverages? Competition
is tea, coffee, softdrinks
– thirst -quenching?
Competition is water & all
liquids!
 Broad / Narrow Business Definition

Broad Narrow
Beverages Fizzy drinks
Children’s entertainment Toys for toddlers
Furniture Waterbeds
Travel River cruises in Egypt
 Objectives
•Strategic vs. Financial?

•Long range vs. short range?

•Challenging but achievable

•Measurable
Strategic vs. financial objectives?
• Strategic
– focus is on competitors
• eg. becoming the top company in the industry

• Financial
– focus is on financial performance
• eg. acceptable profit margin/ ROI
• Both are neccessary
– company must survive in both short and
long term
 Long vs. Short term?

• Long term forces

– early action
– long term implications
considered
• Short term encourages
– speedy progress
 Challenging but Achievable
• objectives must be
realistic
• but should stretch
• funds/ resources must
be available to execute
the strategy
Measurable

• Objectives must be
measureable
– eg. growth in market share
of 5%
• Deadlines must be set
– eg. by December next

‘You cannot manage what

you cannot measure’
Objectives needed at all levels

• Parts supporting the whole

• Top-down objective-setting
- cohesion
- leadership
Approaches to performing the
strategy making tasks
– Master strategist: manager is chief architect
– Delegate to others
– Collaborative approach
– Champion approach
 Factors that
External shape strategy
Society Industry Opportunity
political Attractive- threat
regulatory ness

Evaluation
Company’s strategic situation Choice Craft
Craftaa
Strategy
Strategy

Strengths Manager Culture

weakness values /
ambitions

Internal
 Societal, Political, Regulatory
Conditions
• Limit the strategic actions that a company
can or should take
• May cause company to change strategy
– anti-smoking lobby (direct mkg/advertising)
– lead-free petrol (eg Pura)
– recycling
 Industry Attractiveness
• Strategy must be matched to industry and
competitive conditions eg.
– technology shift
– change in cost structure of industry
 Market Opportunities and
Threats
• Be open to opportunities
• Aim at capturing best growth opportunities
• Defend against threats to well-being and
future performance
 Organisational Strengths and
Weaknesses
• Strategy must be well-matched to the
company’s strengths
– strategy should be grounded in what company
is good at doing
– perilous to depend on what it’s not good at
Manager’s Values, Beliefs and
Ambitions

• Management play a pivotal role

• Strong leadership builds commitment
• Management communication - ‘buy-in’
 Strategy formulation:
deciding what to do

• what you might do: opportunity

• what you can do: resources
• what you’d like to do: values/
ambitions
• what you ought to do: ethics
 Tests for a good strategy
• Goodness of fit test
– matches well the company’s situation
• internal
• external
• Competitive advantage test
– leads to sustainable competitive advantage
• Performance test
– leads to superior performance
• profitability
• long term business/ market position strength
Benefits of a Strategic Approach

•Direction
•Adaptable / in-tune with environment
•Basis for budget/resource allocation
•Unifies decisions across organisation
•Encourages pro-active management
•Requires strategic thinking rather than gut-
feel/drift