MGT 406

Business Policy and Strategy

CHAPTER 1

Basic Concepts of
Strategic Management
Dr. Virginia BODOLICA
 Lecture Outline

Definition of strategy
Different views of competitive advantage
Strategic management process
‘Vision’, ‘Mission’, ‘Goals’, & ‘Objectives’
Levels of strategy (formulation):
 Corporate, Business, & Functional
Strategy implementation, evaluation & control
Modes of strategic decision making
What’s Strategy?
 Strategy – determination of
LT goals of an enterprise,
adoption of actions & the
allocation of resources
necessary for carrying out
these goals (Chandler)
 Strategic management –
set of managerial decisions &
actions that determines the
long-run performance of a
firm (Wheelen & Hunger)
3 Strategic Q-ions
1. Where are we now?
• Products/services offered to our
customers
2. Where do we want to go?
◦ Businesses to be in & market
positions to stake out
◦ Buyer needs to serve & outcomes
to achieve
3. How will we get there?
◦ Firm’s answer to this q-ion is its
strategy
Different Views of Competitive Advantage
Industrial Resource-based Guerrilla view
organization view
Author Porter Barney D’Aveni
Competitive Positioning in Possessing unique Temporary
advantage industry organizational assets
or capabilities
Determinants of • Characteristics of Type, amount, & Ability to change &
profitability industry nature of firm’s radically surprise
• Firm’s position resources competitors with
within industry strategic actions
Focus of analysis External Internal External & internal

Major concern Competition Resources-capabilities Continual, radical &

chaotic conditions
Strategic choices • Choosing Developing unique Rapidly & repeatedly
attractive industry resources & distinctive disrupting current
• Appropriate capabilities situation & surprising
position competitors
Strategic Management Process:
Main Components
Mission Vision

Goals

Objectives

Feedback / Learning Process

Environmental Scanning & Strategy Formulation
Environmental scanning:
Evaluating & disseminating info
from external & internal
environments to key people in the
organization
 External analysis:
 Societal environment – PESTEL
 Industry analysis – competitive
forces shaping the industry
 Internal analysis:
 Structure – chain of command
 Culture – beliefs, expectations, values
 Resources – assets, skills,
competences, knowledge
Strategy formulation:
Development of LT plans for
effective management of O & T in
light of corporate S & W
 Formulation of realistic &
achievable plans
 Identifyvision & mission,
specifying achievable goals &
objectives
 Roleof versus quantitative &
qualitative (rational) analysis versus
intuition (irrational)
 Most successful strategies =
integration of both formal analysis
and intuition
 Vision

Where the firm is going & where it

intends to be in the future
Delineates management’s aspiration & intention

 Future business path – where are we going?

What type of company we are trying to create?

Bring energies of employees in a common direction

 Three main components:

1. Position 2. Product 3. Market
 Examples of Vision

Wells Fargo
We want to satisfy all of our customers’ financial needs, help them
succeed financially, be the premier provider of financial services
in every one of our markets, and be known as one of America’s
great companies.
Sabic (Saudi Basic Industries Corp.)
Our vision is to be the preferred world leader in chemicals.
Dental Products Division of 3M Corporation
Become THE supplier of choice to the global dental professional
markets, providing world-class quality and innovative products.
 Mission

 Reason of firm’s existence & linked to firm values

 Current firm activities: who we are, where are we now, what we do
 Three main components:

1. What is being satisfied? – needs

2. Who is being satisfied? – groups
3. How needs are satisfied? – values & approaches used
 Should be broad enough, but not too narrow
 Disadvantages of narrowly defining the mission:
 Limits firm’s choice of opportunities & its response to external
changes
 Ex. Define itself as “railroad” industry rather than “transportation”
- not compete with truck & airline co.
 Examples of Mission Statement

Southwest Airlines
The mission of Southwest Airlines is dedication to the highest quality of
Customer Service delivered with a sense of warmth, friendliness,
individual pride and Company Spirit.
ADNOC (Abu Dhabi National Oil Company)
ADNOC Distribution is the strategic partner for the energy distribution and
allied services.
We are committed to provide value to our customers and shareholders,
care for our employees; be socially responsible, environmentally
conscious and maintain high standards of health and safety.
Google
Google’s mission is to organize the world’s information and make it
universally accessible and useful.
 Goals Objectives
Open-ended statements of  Identify the exact ways to achieve
planned accomplishment the goals
Long term targets to be  Commitment to achieve specific
achieved performance targets
 Spell-out how much of what kind of
Provide the focus for the firm’s
mission statement performance by when
 Should be SMART
Quite broad & less specific
 Examples of objectives:
Examples of a goal:
 5 % increase in annual revenues
 Promote employee commitment
& loyalty
 2 % increase annually in earnings per
share
 Generate needed resources to
 annual dividend increase of 1%
maintain competitive advantage
in the region  quarterly profit margins of 2%
 Achieve sufficient profit to  4% return on capital employed by
finance firm growth next year
 Integrative Example (I)
Company Mexican Corn products Inc.
Vision: Mexican Corn Products Inc.’s vision is to be
the leader in the natural authentic Mexican inspired
snack industry in Eastern Canada. 
Mission: Mexican Corn Products Inc is dedicated to
provide a true Mexican experience by exceeding its
customer’s needs and expectations. Our family oriented
culture helps build a strong working environment for
all employees based on dedication, hard-work and
passion for the business. We strive in improving our
efficiencies through innovation while offering superior
retail value proposition to our customers.
 Integrative Example (II)
Mexican Corn products Inc.
Goals: Objectives:
1. To produce consistent, 1. Maintain the level of artificial
natural high quality products ingredients in products at 5%
2. To innovate on new products 2. Install new equipment that
and operational processes would allow reducing
production costs by 30%
3. To create value to our
stakeholders via sustained 3. Increase corporate growth by
corporate growth 2% per year
4. To promote dedication for a 4. Offer training seminars to our
strong viable workforce employees twice a year
5. To increase market share on 5. Increase market share in
quality driven products Eastern Canada by 3% per year
What Does this Statement Represent?

“Our mission is to grow and dominate the U.S. specialty

tea market by exceeding consumer expectations with
the best tasting, 100% natural hot and iced teas,
packaged with Celestial art and philosophy, creating the
most valued tea experience. Through leadership,
innovation, focus, and teamwork, we are dedicated to
continuously improving value to our consumers,
customers, employees, and stakeholders with a quality-
first organization”.
Levels of Strategy
CORPORATE:
- The broadest in scope;
- Establish investment priorities;
- Place where the statement of
mission should be accomplished;
- Ex. Growth, stability, and
retrenchment strategies

BUSINESS:
- Grouping of similar products or
services;
- Number of industries in which the
firm competes;
- Ex. Cost leadership, product
differentiation

FUNCTIONAL:
- Financial, manufacturing,
marketing, HR strategies
 Strategy Implementation vs. Evaluation & Control
Strategy implementation:
Process by which strategies are put
into action through the development
of programs, budgets & procedures
 Program – broad statement of
activities to accomplish (ex. resolve
poor relations with labor union)
 Budget – statement of firm program
in terms of dollars (ex. $4.3 billion
from 2000-2004 to update GM
Cadillac lines of auto)
 Procedures – system of sequential
steps or techniques that describe in
detail how a particular task/job is to
be done (ex. set meetings, organize
training, communicate results)
Strategy evaluation &
control:
Process in which firm activities &
outcomes are monitored so that
actual performance can be
compared with desired performance
 Take corrective actions & resolve
problems
 Point to weaknesses in implemented
plans & stimulate the process to start
again
Feedback & Learning Process:
 As a business unit develops strategies,
it must revise or correct decisions
made earlier in the process
 Initiation of Strategy
Triggering Event – that acts as a stimulus for a change in
strategy:
 New CEO: forces people to question the very reason of company
existence
 External intervention: bank that refuses to approve a new
loan; customer who complains about a serious product defect
 Threat of a change in ownership: another company may
initiate a takeover by buying a company’s common stock
 Performance gap: when performance expectations are not
met, profits are falling
 Strategic inflection point: when a major change takes place
due to the introduction of new tech, different regulatory
environment, change in customers values
 Modes of Strategic Decision Making
 Entrepreneurial: proactive mode, strategy made by 1
powerful individual (ex. founder); focus is on opportunities,
while problems are secondary
 Adaptive: reactive solutions to existing problems rather
than proactive search for new opportunities (ex. hospitals,
universities, large corporations)
 Planning: systematic gathering of appropriate info for
situation analysis, generation of feasible alternative
strategies & selection of the most appropriate one (both
proactive & reactive)
 Logical incrementalism: ST strategic moves, trial &
error, interactive process where the firm probes the future,
experiments & learns from incremental commitments