Chapter 1

Concepts of Strategy and Planning

by
Monica Belcourt & Mc.Bey
 Introduction
 Air Canada, with 40,000 employees, was
facing strategic decisions due to unstable
political situation around the world.
 Problems:
• Passengers,
• Competition from low cost carriers
• Heavy debt
• Revenues
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 Introduction
 Strategic decisions:
– Acquire its competition, Canadian Airlines. And
attempted to divest some of its assets, by selling 35% of
Aero-plan to Onex Corporation, an investment firm
– Create multiple brands such as Tango and Zip in an
attempt to compete with the low-cost carriers.
– Try to increase its market share of international business
travel because the domestic market was stagnant.
– Downsize by laying of 10% of its employees in an attempt
to reduce its $3billon annual labor expense.

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 Mintzberg’s Five Ps of Strategy
 Plan: an intended course of action to deal with a
situation.
 Purpose: a consistent stream of actions that
sometimes are the result of a deliberate plan or
emergent action based on reactions to environment.
 Ploy: a specific maneuver at the tactical level with a
short time horizon.
 Position: the location of an organization relative to
its competitors and other environmental factors.
 Perspective: the gestalt or nature of the organization.
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 Descriptions of Strategy [Box 1.1]
 Strategy: a declaration of intent. Strategy is a set of
decisions and actions designed to achieve
organizational objective.
 Strategic intent: a point of view about the
competitive positions a company hopes to build over
a decade.
 Strategic planning: the plans to achieve strategy.
 Strategy formulation: the entire process of
conceptualizing the mission, strategy, and
developing long term performance goals.
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Descriptions of Strategy [Box 1.1]
 Strategy implementation: implementation of
formulated strategy.
 Objectives: the end, the goals.
 Plans: the product of strategy.
 Strategic plan: a written statement that outlines
the future goals of an organization.
 Policies: broad guidelines to action, which
establish the parameters or rules.
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 Execution of Strategy
 Define vision, purpose, mission, and a clear
direction.
 Convert the vision into measurable objectives.
 Determine the plan to achieve the strategy.
 Implement the plan in effective and efficient
ways.
 Measure the result against goals, revise plans in
light of actual experience, search new ideas and
opportunities.
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 Strategic Plan
 Some argue that future is unpredictable and a long-
term plan is difficult. So, a short-term 3-5 years
flexible plan is often used. [eg. Catastrophic events of
September 11, 2001]
 “Logical Incrementalism” or “Emergent
strategy”--The process of redirecting strategy to
accommodate environmental changes.
 “Intended strategy” is the one formulated at the
beginning of a strategy.
 The realized strategy” is what actually happened.
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 Strategic Plan
 Thus, a good strategy recognizes the
complexities of the realities-
 To be effective Strategic management:
• anticipates future problems,
• provides an alignment with external
contingencies and internal competencies,
• recognizes multiple stakeholders, and
• is concerned with measurable performance.
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 Strategic Types
 Strategy can be unique to different
organizations, but they can be grouped like
personality types.
 Basic strategies are of two types.
» Corporate strategies, and
» Business strategies

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 Strategic Types

Strategy

Corporate Strategy Business Strategy

Restructuring Maintenance Growth

 Turnaround  Incrementally
 Divestiture  Internationally
 Liquidation  Mergers
 Bankruptcies  Acquisitions
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 Strategic Types
1. Corporate Strategies: Overall strategy for the
company and its businesses or interests.
These are usually focus on long-term and include
major decisions such as a decision to compete or
operate internationally or acquire another company.
Three options of corporate strategies:
a. Restructuring,
b. Growth, and
c. Maintenance.
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 Strategic Types
Restructuring: When an organization is not achieving its
goal such as making profit or achieving its goals, options
are: turnaround, divestiture, liquidation and bankruptcy.
i. Turnaround
Managers try to restore a losing business to profitability or
a government agency from nonperformance to viability.
Methods are-
• to get rid of unprofitable products,
• layoffs,
• improving efficiency, or
• adding a new product.

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 Strategic Types [Box 1.2]
Example (Turnaround):
McDonald’s revive its success in 2003 when its profits
were down by 11%, sales by 5% from $40 billion of
2002.
 Introduced Paul Newman’s Own healthy salad
dressings to their light menu;
 Introduced a food and nutrition website;
 Attempted to tape regional food interests, girts in
some southern U.S. restaurant;
 Restructured by eliminating several hundred
administrative jobs and dropped a $300 million plan
to renovate older restaurant.
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 Strategic Types
ii. Divestiture : It refers to making a business
(subsidiary) financially and managerially
independent or selling it outright. Sometimes, fit is
the problem, not finance.
Example:
Air Canada attempted to divest its Aeroplan
business and then put its maintenance division
and its low-cost carrier Jazz on the market.
A pharmaceutical company divested in cosmetic
business though the scientists had no respect for
the frivolous cosmetic and making pretty faces.15
 Strategic Types
iii. Liquidation:
 Plants are closed,
 employees are released and
 goods are auctioned off.
 Little return (salvaged) to share holders.

iv. Bankruptcy: It occurs when the company cannot

pay its creditors. Company ceases to exist and
assets are divided among creditors.

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 Strategic Types
Restructuring has profound effect on HRM.
• Managed turnover,
• Selective layoffs,
• Transfers,
• Increased demand on remaining
employees,
• Renegotiated labor contract.

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 Strategic Types
b. Growth Strategies:
 Many companies make the growth strategy as its
target.
 This means growth in revenue, sales, market share,
customers, orders, etc.
It has implications for HRM.
• Job creation,
• aggressive recruitment and selection,
• rising wages,
• training and development budgets.
Several ways: Incrementally, internationally, and
mergers and acquisitions.
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 Strategic Types
i. Incremental Growth:
It can be done by- expanding client base, increasing
products or services, changing distribution networks,
or using technology.
Example: Proctor & Gamble
 expanded the client base (introduced skin care and
hair conditioner for babies),
 added a product, Pringle potato chips to its cleaning
and health care products,
 changed distribution networks, added drugstores to
grocery stores, and
 used technology to manage just-in-time customer
purchasing. 19
 Strategic Types
ii. International growth: It is expanding business
to other countries. It has a great HR implications.
iii. Mergers and acquisitions
 Acquisition is acquiring a new company.
 Merger is putting together two or more
companies for economy of scale.
It has HRM implications: Eliminate duplication,
meld (blend, combine) benefits and labor
relations and create a common culture.
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 Strategic Types [Box 1.4] Merger Misery

 Minacs Worldwide Inc,. (call centers in Canada)

experienced growth rates of 50% over five years,
employed 4500 people in 20 countries and generated sales
of $250 million,
 In 2002, purchased Phoenix Group, a U.S. based call
center to double its profits and sales.
 Although two cultures seemed similar, integration proved
very difficult and time consuming.
 Differences in accounting systems, Pricing methods and
efficiency levels.
 The losses led to layoffs, the consolidation of offices, debt
restructuring, and severe drop in share value.
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 Strategic Types
c. Maintenance strategies
 It is maintaining status quo.
 Satisfied with market share. No need to grow.
HRM practices remain constant. Try to get as
much profit as possible. It is harvest strategy.

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 Models of Business Strategies
2. Business Strategies
 Corporate strategy is used to manage and
control various units in an organization.
 Business strategy answer the question of,
how should we compete?
 Whereas, corporate strategy answer
question, should we be in business? What
business should we be in?
There are three models for analyzing businesses:
 Boston Consulting Group model (BCG),
 Miles and Snow’s organizational types and
 Porter’s model. 23
 Boston Consulting Group model
This is a portfolio matrix for analyzing strategies of
different units of an organization (portfolio).
–Indicators such as growth rate, market share, long-term
industry attractiveness and competitive strategy or stage of
product/market evolution.

It requires some relative analysis on both indicators.

–Growth rate to be considered high, should have, say,
double the average industry growth rate.
–Market share also has to be assessed in relation to other
companies. 24
 BCG growth in Share Business
Position
Relative Market Share
High Low
(above 1.0) (below 1.0)
Industry
Growth High
Rate Stars Question
Marks

Low
Cash Dogs
Cows

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 High Growth Rate
Stars (HH)
 Offer excellent profit and growth opportunities.
 Parent company will pour cash to expand this business.
 Stars can generate enough cash to expand other
businesses.
Question marks (LH)
 Company does not seen to capitalize on the
opportunity.
 Does the firm have competitive strength or does the
parent company have resources to make it
competitive?
 Divest or invest to expand.
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 Low Growth Rate
Dogs (LL)
 No potential, and no cash generation to defend itself.
 Profits are marginal in an industry where competition is
tough.
 The strategy is to ‘close’ by harvesting, divesting or
liquidating.
Cash cows (HL)
 It may be profitable because its products are less
expensive or its gives a unique service.
 It generates more cash than can be reinvested to grow.
 Keep it healthy to subsidize the stars or to deal with
problem units.
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 Miles and Snow’s Organizational
Types
i. Defender: It competes in a relatively stable and
predictable environment and pursues a low-cost
operations, focusing on efficiency through
standardized jobs, formalization and centralizations.
ii. Prospector
– It operates in a dynamic environment.
– Innovation and adaptation are critical for success.
– Example. Telecom needs heavy investment in R & D
for innovation and adaptation and decentralized
structures for rapid and intelligent responses to
environment.
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 Miles and Snow’s Organizational
Types
iii. Analyzer
 It is a combination of defender and prospector,
attempting to achieve efficiency with an interest
in new markets and products.
 It scans competitors’ actions and promptly
develops better ways to get products to market.

iv. Reactor
 It is an imperfect and ineffective type and has no
apparent strategy and lacks consistent response to
changing conditions.
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 Porter’s Model: Five Competitive
Strategies
What particular goods and services, what features to
differentiate?
– Cost, quality, optional features, durability and
reliability.
– Market dimensions: size, diversity, buying patterns
and geographical regions.

i. Low-cost provider strategy

 Provide a product or service at a price lower than that
of a competitor appealing to a broad range of
customers.
 It continuously tries to reduce cost. Fast food company.
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 Porter’s Model: Five Competitive
Strategies
ii. Broad Differentiation Strategy
– It tries to differentiate its products from
competitor’s products that will appeal to a broad
range of customers.
– It tries to search for features that will make its
product or service better.
iii. Best-cost Provider Strategy
– The goal is to give customers more value by
emphasizing a low cost product or service and
upscale differentiation.
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 Porter’s Model: Five Competitive
Strategies
iv. Focused or market niche (specialized, limited) strategy
based on lower cost
– Offering a low-cost product to a selected group of
customers.
v. Focused or market niche (specialized, limited) strategy
based on differentiation
– It offers a niche product or service to the tastes and
requirement of a very narrow market segment.

– Under Porter’s scheme, business strategy concerns with

product and market scope. (Selling Pork/Organic
vegetable in Dhaka to a narrow market segment).
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