1 introduction to strategy
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Strategic Management
An Introduction to Strategy
2
Learning Outline
What is strategic management? Why is strategic management
important? Who is involved with strategic
management? Strategic management today
3
A definition of strategy
Goal-directed decisions and actions in which capabilities and resources are matched with the opportunities and threats in the environment.
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Military influences in strategy
“Strategos” referred to a general in command of an army
The art of the general By 450 B.C. it came to mean managerial skill By 330 B.C. it referred to the skill of employing forces
to overcome positions to create a system of global governance
Carl von Clausewitz “tactics…(involve) the use of armed forces in the engagement, strategy (is) the use of engagements for the object of war” 1838 On War
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Academic influences in strategy
1911 Scientific management (Taylor) – Still in place today (UPS), some consider it micromanaging
HBS requires a class in Business Policy in 1912 Adam Smith’s “invisible hand” (the market) gives way to
Alfred Sloan (GM CEO from 1923-1946) concept of the “visible hand”—middle manager
Chester Bernard influential book “The Executive” argues that managers should pay attention to “strategic factors”
Ronald Coase’s 1937 article “why firms exist” (Nobel Prize in economics) and Joseph Schumpter’s concept of “disruptive technologies” written in 1942 bring in organizational economics
Max Weber warns against bureaucratic organizations but sees a shift toward this way of organizing
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Recent influences in strategy
1960s (Strategy and structure; Corporate Strategy)
• 1963 Harvard business conference leads to SWOT analysis
• BCG founded in 1963 “strategy boutique”• Created the portfolio analysis
• Stars, dogs, cash cows, question marks
1980s (Porter’s 5 forces) 1990s (Resource based view of the firm)
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Why is strategic management important?
Gives everyone a role Makes a difference in performance levels Provides systematic approach to
uncertainties Coordinates and focuses employees
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Why Strategy?
To change, an organization needsBurning PlatformVisionLeadershipStrategic Management Political Management
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Strategy vs. Strategic Management
Strategy A series of goal-
directed decisions and actions matching an organization’s skills and resources with the opportunities and threats in its environment
Strategic management Analyze current
situation Develop
appropriate strategies
Put strategies into action
Evaluate, modify, or change strategy
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Strategy vs. Strategic Management
Strategy involves Organization’s
goals Goal-oriented
action Related decisions
and actions Internal strengths External
opportunities and threats
Strategic management Planning Organizing Implementing Controlling
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Basics of Strategic Management
Four aspects that set strategic management apartInterdisciplinary
• Capstone of the Business degree
External focus• Competition
Internal focusFuture direction
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Strategic Management Process
AnalyzingCurrent
Situation
Decidingon
Strategies
PuttingStrategiesin Action
Evaluating andChanging Strategies
SituationAnalysis
StrategyFormulation
StrategyImplementation
StrategyEvaluation
Chapter 2 Chapter 3
Chapter 4
ExternalAnalysis
InternalAnalysis
Chapter 5 Chapter 6
Chapter 7
Functional Competitive
Corporate
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Strategic Management Process Situation Analysis
Scanning & evaluating context Internal and External environments
Strategy formulation Functional Competitive Corporate strategies
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Levels of strategy
Competitive:How are we going to compete in
our chosen business(es)?
FunctionalWhat resources and capabilities do
we have to support the corporate and competitive strategies?
CorporateWhat direction are we going and
what business(es) are we in or do we want to be in?
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Strategic Management Process
Strategy implementationProcess of putting strategies into
actionConsider implementation at each level
Strategy evaluationWas the strategy effective?“Close the loop”
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Who does strategy?
The Role of the Board of Directors Elected representatives of the company’s stockholders Legally obligated to represent and protect stockholder’s
The Role of Top Management Responsible for decisions and action of every employee Providing effective leadership
Other Organizational Employees Implement— put the strategies into action and monitor
performance Evaluate—do the actual evaluations and take necessary
actions
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The Role of the Board of Directors Review and approve strategic goals and plans Review and approve organization's financial
standards and policies Approve an organizational philosophy Monitor organizational performance and
regularly review performance results Select, evaluate, and compensate top-level
managers Develop management succession plans Monitor relations with shareholders and other
key stakeholders
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Who is on the board of directors? Chairman of the board
Chief Executive officer (CEO) President
Chief Operating officer (COO) Other C’s
Chief Financial officer Chief Information officer
Inside board members Outside board members
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The Role of Top Management
EffectiveStrategic
Leadership
Exploiting andMaintaining
Core Competencies
DevelopingHuman Capital
Creating andSustaining Strong
Organizational Culture
EmphasizingEthical Decisions
and Practices
EstablishingAppropriately
Balanced Controls
DeterminingOrganizational
Purpose or Vision
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Strategic Management Principle
Effective strategy-making
begins with a vision of where
the organization needs to
head!
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Elements of a Strategic Vision
Use the mission statement as a as a starting pointstarting point
Develop a strategic vision that spells out a course to pursue
CommunicateCommunicate the vision in a clearclear and excitingexciting manner
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Characteristics of a Mission Statement
Defines current business activities Highlights boundaries of current
business Conveys
Who we are, What we do, and Where we are now
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Characteristics of a Mission Statement
Company specific, not generic —so as to give a company its own identity
A company’s mission is not to make a profit !
The real mission is always—“What will we do to make a profit?”
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Empower people through great software anytime, anyplace,
and on any device.
Microsoft
Corporation
Examples of Missions
25
Otis Elevator
Our mission is to provide any customer a means of moving people and things up, down, and sideways
over short distances with higher reliability than any similar enterprise in
the world.
Examples of Missions
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Examples of Mission
The mission of the American Red Cross is
to improve the quality of human life; to
enhance self-reliance and concern for
others; and to help people avoid, prepare
for, and cope with emergencies.
American Red Cross
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The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests is our
highest mission.
We pledge to provide the finest personal service and facilities for our guests who will
always enjoy a warm, relaxed yet refined ambiance. The Ritz-Carlton experience enlivens the senses, instills well-being, and fulfills even
the unexpressed wishes and needs of our guests (vision)
Ritz-Carlton Hotels
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Characteristics of a Strategic Vision
Charts a company’s future strategic course
Defines the business makeup for 5 years (or more)
Specifies future technology-product-customer focus
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Communicating the Vision
An exciting, inspirational visionChallenges and motivates workforceArouses strong sense of organizational
purposeInduces employee buy-inGalvanizes people to live the business
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Value of a Well-Conceived Strategic Vision and Mission
Crystallizes long-term direction Reduces risk of rudderless
decision-making Conveys organizational
purpose and identity Keeps direction-related actions of lower-
level managers on common path Helps organization prepare for the future
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Concept of Strategic Intent
A company exhibits strategic intent when it relentlessly
pursues an ambitious strategic objective and concentrates its
competitive actions and energies on achieving that objective!
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Lessons about change: Built to last Understand why superior companies
are better than peer companies which are better than most companies$1 invested in stock market in 1926
yields• $420 in all other companies• $960 in peer companies• $6360 in superior (visionary) companies
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Who are these companies Visionary
3M Boeing GE IBM Motorola Nordstrom P&G Sony Wal-mart
Peer companies Norton McDonnell Douglass Westinghouse Burroughs Zenith Melville Colgate Kenwood Ames
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So what did they find?
Great companies had BHAGBig Hairy Audacious Goals
What ever your values are “stick with it”
Deal with the AND, not the OR Seek Alignment (internally)
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Characteristics of Strategic Intent
Indicates firm’s intent to stake out a particular position over the long-term
Involves establishing a BHAG - ”big, hairy, audacious goal”
Signals relentless commitment to winning
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Example of BHAG
General Electric• All businesses are held to a standard of
being #1 or #2 in their industries as well as achieving good business results
John F. Kennedy• Put a man on the moon and return safely
by the end of the decade
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Crafting a Strategy
An organization’s strategy deals with How to make the strategic vision a reality
and achieve target objectives The game plan for
• Pleasing customers
• Conducting operations
• Building a sustainable competitive advantage
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Take Aways
Strategy has become more important• Information, technology, globalization
Key ideas in the strategy making process Mission (who are we) Vision (where do we want to go) Strategic intent / BHAG (major goal) Strategy (specific plan at different levels) Ethics (code of conduct or values)
Linkage & communication are important Avoid mission creep!
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Take Aways
Where strategy came from Strategic Management Process Who does strategy Next week
Read Airline Simulation Book (1-35) Bring Laptop
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