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Basic Concepts of Strategic Management
Meeting 1
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TerminologyTerminology
� Strategic management� Refers to:
� Strategy formulation� Strategy implementation� Strategy evaluation
� Strategic planning� Refers to:
� Strategy formulation
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Organizing ThemesOrganizing Themes
� Globalization� Internationalization of markets and corporations
� Global (worldwide) markets rather than national mar kets
� Electronic Commerce� Use of the Internet to conduct business transaction s
(management tool)� Basis for competition on a more strategic level rat her than
traditional focus on product features and costs
� The natural environment has become an important strategic issue.
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Basic Concepts of Strategic Management
• Forcing company transformation• Market access & branding changing – disintermediation
of traditional distribution channels• Balance of power shift to consumer• Competition changing• Pace of business increasing • Internet purchasing beyond traditional boundaries• Knowledge key asset – source of competitive advantage
Electronic Commerce -- Trends
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Brief HistoryBrief History
� 1950s� Term strategic planning originates1960s – 1970s� Strategic planning very popular
� Widely viewed as panacea for problems
� 1980s� Strategic planning cast aside
� Planning models did not yield higher returns
� 1990s–2000� Revival of strategic planning
� Widely practiced in business world
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Brief history of strategic thought
Period Author Development
Circa 500BC Sun Tzu • The Art of War
Mid 1960s Christensen et al.
Ansoff
• Business policy (strategy) exists as a field of study
• Corporate planning is valuable
Late 1960s Early 1970s
Boston Consulting Group
PIMS
• Multi-business portfolio planning techniques
• Business profitability relationships
1980s Porter • Five forces industry analysis
• Generic strategies
• National competitiveness
Early 1990s Wernerfelt, Barney
Hamel and Prahalad
Senge
• Resource-based view
• Core competencies
• Learning organisation
Mid 1990s Hamel and Prahalad
D’Aveni
• Strategy as stretch for the changing future
• Hypercompetition
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Corporate strategy development(1960s and 70s)
� Anti-trust laws encouraged diversified growth and development of giant conglomerates
� This created a need for Corporate Strategy tools� BCG Matrix� Profit Impact of Market Strategy (PIMS)
� Environmental uncertainty reduced the value of long-range planning
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Focusing on industry and competitive analysis (1980s)
� Michael Porter’s contribution to strategy� Firms can influence both the conduct and structure of
their industry� There are ‘Five Forces’ that affect competition with in an
industry� There are only three ‘generic strategies’
� Low delivered cost� Differentiation� Focus
� Nations can develop competitive advantage
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Focusing internally:the resource based view (RBV)
� Industry analysis and market positioning not enough to maintain competitive advantage� US firms unable to compete with Japanese companies
using efficient and effective operational processes based on TQM
� No means of strategy implementation� A developing understanding that strategy could be
developed from within using core competencies� Heterogeneity of firms seen as the source of compet itive
advantage
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Dynamic processes and capabilities: learning and knowledge
� Industry analysis and RBV provide static analysis of current position� Do not address future competition and development o f
future resources and capabilities
� Internal systems and processes influence development of strategy
� ‘Learning organisations’ are better able to develop dynamic capabilities
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Strategy as a stretch; innovation and growth; hypercompetition; complexity
� Firms need to stretch themselves for the future, no t simply create internal fit through improved efficiency
� Innovation is necessary for survival in an unpredictable environment
� Growth is necessary just to maintain position� As the speed of change increases, competition
increases leading to ‘hypercompetition’� Greater acceptance that firms are ‘complex
adaptive systems’ and that chaos theory applies to strategy
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Theoretical approaches to strategy
Theory Primary Areas of Attention
Structure-Conduct-Performance/Positioning
• Industry structure
• Industry profitability
• Competitor positions
Transactions Costs Economics • Markets and market availability of goods and services
• Internal production costs
Agency theory • Incentives, controls and contracts between management and owners
Game theory • Actions and reactions of competitors over time
Behavioural theory • Identification of stakeholders
• Understanding the goals and power of stakeholders
• Understanding decision-making processes within the organisation
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Theoretical approaches to strategy
Theory Primary Areas of Attention
Managerial theory • Managerial motives and actions
• Organisational aims
Resource-based view • Identifying unique, valuable resources within the organisation
Dynamic capabilities • Identifying the underlying processes of the organisation which lead to the existence of the resources of the organisation
Evolutionary theory • Analysis of the past learning process and existing learning capabilities of the organisation
Chaos theory • Understanding the elements of the system of organisations and environment in which the particular organisation exists
• Understanding how organisations in the system have adapted, grown and self-organised, or have failed.
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Summary: strategic theory
� Considerable overlap as well as considerable differences
� the theoretical lens used will affect the strategy process
� solutions are likely to be different� there is no clearly agreed ‘meta-theory’ or
integrating perspective
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Strategy: Definitions“Art and science of formulating, implementing, and
evaluating cross-functional decisions that enable a n organization to achieve its objectives” (David)
“Set of managerial decisions and actions that deter mines the long-run performance of a firm”. Wheelen
“Those decisions which have high medium-term to lon g-term impact on the activities of the organisation, including the implementation of those decisions, to create va lue fro customers and key stakeholders and to outperform competitors.” (Hubbard)
So what is Strategy?Why do we have strategies?What is a good strategy?
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Basic Concepts of Strategic Management
Strategic Decision-Making Process
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How is strategy managed?
� Information gathering� internal� external
� Information analysis� Strategy formulation
� Decision making� Implementing� Monitoring
ThinkingThinking}AnalysisAnalysis
ActionAction}
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Basic Concepts of Strategic Management
Basic Elements of the Strategic Management Process
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Basic Concepts of Strategic Management
Environmental Variables
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Strategy Formulation
Vision & Mission
Alternative Strategies
Long-Term Objectives
Strengths & Weaknesses
Opportunities & Threats
Strategy Selection
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Strategy Formulation
Vision & Mission
Alternative Strategies
Long-Term Objectives
Strengths & Weaknesses
Opportunities & Threats
Strategy Selection
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Strategy Implementation
Motivate Employees
Policies
Annual Objectives
Resource Allocation
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Strategy Evaluation
Corrective Action
Measure Performance
ReviewExternal & Internal
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Organizational Adaptation
Organization “fit” with environment
• Theory of population ecology• Institution theory• Strategic choice perspective• Organizational learning theory
Strategic flexibility
• Demands long-term commitment to development of critical resources
• Demands firm become a learning organization
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Learning Organizations
An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights
4 Chief Activities
• Systematic problem solving• New approach experimentation• Learning from experiences• Intra-organization knowledge transfer
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Basic Concepts of Strategic Management
Hierarchy (Level of Strategy
Corporate strategythe portfolio mix of businesses held by a multi-business organisation /corpGoals: Profitability, Growth, Resource utilization (ROE, ROI), Market leadershipStrategy: Stability, Growth, Retrenchment
Business strategypositioning relative to competitors to create sustainable competitive advantageStrategy: Competitive strategies and Cooperative strategies
Functional strategyhow functions of the business contribute towards achieving the business strategyStrategy Technological leadership, Technological followership
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Strategic Decision Making
Strategic Decisions
–Rare–Consequential–Directive
Mintzberg’s Modes
–Entrepreneurial mode–Adaptive mode–Planning mode–Logical incrementalism
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Strategy as the task of the top manager
� Origins of Corporate Strategy� Business Policy: Text and Cases (1965) by
Learned, Christensen, Andrews and Guth� Corporate Strategy (1965) by Igor Ansoff
� Strategy seen as the province of the CEO� Need to match resources and capabilities of
the organisation with the demands of the environment
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External
appraisal
Internal
appraisal
Creation of
strategy by top
management
Creation of
strategy by top
management
Social
responsibility
Social
responsibility
Top management
values
Top management
values
Threats and
opportunities in
environment
Threats and
opportunities in
environment
Key success
factors
Key success
factors
Strengths and
weaknesses in
organisation
Strengths and
weaknesses in
organisation
Distinctive
competences
Distinctive
competences
Evaluation and
choice of
strategy
Evaluation and
choice of
strategy
Implementation
of strategy
Implementation
of strategy
Strategy as the Task of the Top Manager
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Strategy as the task of the top manager
� This model now considered a simple model� Linear, implementation follows strategic
analysis� Presumes that all information is available� Presumes that the complex external
environment can be analysed and summarised� Presumes close relationship between future and
past� Was adequate in stable, post-war environment
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A model of business strategy
The ESC-Gap Model � Hubbard, Pocknee and Taylor’s ESC-Gap
analysis model examines the relationships and gaps between Environment, Strategy, Capabilities and performance.
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Components of the ESC-Gap model
� the Environment of the organisation� industry environment� macro-environment (all external environment
excluding industry)� business Strategies
� an assessment of vision, mission, values and stakeholders
� organisational Capabilities� an assessment of resources and processes of
the organisation
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Components of the ESC-Gap model
� performance analysis� how is the business performing relative to
� demands of the environment� capabilities of the organisation� expectations of stakeholders
� gap analysis� the detailed explanation of the performance analysi s,
highlights shortcomings between expectations and re ality
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Components of the ESC-Gap Model
� strategic options� what can be done to bridge the gaps
� decision making� evaluating strategic options and choosing the best option
� implementation� putting the chosen strategy into action
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Environment Business Strategy Capabilities
Macro-environmentMacro-environment
IndustryIndustry
PeoplePeople
SystemsSystemsEconomicEconomic
FunctionalFunctional
Key StakeholdersKey Stakeholders
ValuesValuesVisionVision
missionmission
External
Consistency?
External
Consistency?
Internal
Consistency?
Internal
Consistency?
PerformancePerformance
Strategic OptionsStrategic Options
Decision makingDecision making
ImplementationImplementation
PerformancePerformance
Performance
Measurement
Performance
Measurement
Business strategiesFunctional strategies
Market strategiesProduct-service Strategies
Generic strategies
Business strategiesFunctional strategies
Market strategiesProduct-service Strategies
Generic strategies
Business strategiesFunctional strategies
Market strategiesProduct-service Strategies
Generic strategies
Key stakeholder effects?Competitor effects?Key stakeholder effects?Competitor effects?Key stakeholder effects?Competitor effects?
StructureSystems
PeopleLeadership
CultureBusiness plan
StructureSystems
PeopleLeadership
CultureBusiness plan
MeasuresSystemsMeasuresSystemsMeasuresSystems
Key stakeholder
consistency?Key stakeholder
consistency?
Gap AnalysisGap AnalysisGap AnalysisGap?
Gap?
Performance
Assessment
Performance
Assessment
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Does Strategy Vary in Different Countries?
� Most strategic thought has been developed in the US, based on that economy
� Most economies are unlike the US economy� Issues faced by companies in the smaller countries
� small local markets� central role of government� role of the public sector
� limited capital markets
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Does Strategy Vary in Different Countries?
� Factors that are unique to a country� history of the country� individual/national values� political systems� resource bases
� These factors combine to make each country unique
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Does Strategy Vary in Different Countries?
� The infrastructure of countries varies� Ranging from almost none to highly developed societ ies
� Most countries significantly different to the US� Especially Eastern and Asian countries
� Strong and consistent move in most countries towards philosophies, policies and practices espoused in the US