Fundamentals ofStrategic Advantage

Fundamentals ofStrategic Advantage

Chapter 10

Strategic ManagementStrategic Management

Most significant form of management decision making

We are concerned about:a process: planninga product: strategy

The thinking about both is called strategic management

What is Strategy ?What is Strategy ?

It is not an exact science It cannot be calculated There are no cook-book approaches

Proposed definition:

Strategy is the pattern of resource allocation decisions made throughout an organization.

These encapsulate both desired goals and beliefs about what are acceptable and, most critically, unacceptable means for achieving them.

What is Strategic Management ?What is Strategic Management ?

Strategic management is concerned with deciding on strategy and planning how that strategy is to be put in effect via :Strategic analysisStrategic choiceStrategic Implementation

Several levelsCorporate strategyBusiness strategy: within business unitFunctional Strategy: e.g. IS strategy

Requirements for a Relevant StrategyRequirements for a Relevant Strategy

The strategy needs to :

be used proactively;

recognize that there are severe limits to the predictability of the future;

take account of the organizational, political, and psychological dimensions of corporate life;

be accepted by the majority of those concerned with strategy to be a realistic relevant tool for more effectively coping with the future.

Model of Strategic Management Elements Model of Strategic Management Elements

StrategicAnalysis

StrategicImplemen-

tation

StrategicChoice

TheEnvironment

Expectationsobjectives andpower:culture

Resources

Generationof options

Evaluationof options

Selection of strategy

ResourcePlanning

Organizationstructure

Peopleand systems

Diversity of Strategic Problems and DecisionsDiversity of Strategic Problems and Decisions

Strategic decisions are :broad in their scope;enduring in their effects;difficult in their reversal;worth devoting time and resources

Factors that determine the nature of strategic problemsthe nature of the industry;the nature of the enterprise;the current circumstances;the organization’s environment.

The nature of strategic changeThe nature of strategic change

Continuity Incremental Flux Global

Established strategyremains unchanged

May make good sense but the worldmay change fasterthan the strategy

No clear direction to the change

Change of this scalehappens at times of crisis when the organisation is out ofstep with the world

Model1: Porter’s five forces modelModel1: Porter’s five forces model

Focussed on the competitive world

Thread of new

entrants

Rivalty amongstexisting

competitors

Bargainingpower ofsuppliers

Bargainingpower of

buyers

Thread ofsubstitute products

or services

Model2: Life cycle analysisModel2: Life cycle analysis

Four stages in life cycle of a product or industry: Introduction

early adoptersdemand unknown

Growthentry of competitors fight for share, undifferentiated products and services

Maturitysaturation of users fight to maintain share, emphasis on efficiency and cost

Declinedemand < supply

Model3: SWOT analysisModel3: SWOT analysis

A SWOT analysis defines the relationship between internal and external appraisal in strategic analysis

Internal factors

Externalfactors

Strengths

Strengths

Weaknesses

Weaknesses

Opportunities Opportunities

Threats Threats

Strategic Analysis: Values and ObjectivesStrategic Analysis: Values and Objectives

Porters value chain model

Administration and infrastructure

Human resource management

Product/technology/development

Procurement

Support activities

Primary activities

Inbound logistics

Operations Outboundlogistics

Sales andmarketing

Services

Valueadded -cost = MARGIN

Value chain of Porter: ICT Influence

MIS, DSS, EIS, ES multimedia, VR

ES, DSS, MIS

DSS, ES, GSS, CASE

EDI, DSS, Voice technology

EDIE-mail

RobotsCAD/CAMSimulation

MRPVRCIM

Scheduling

EDIDSS

EDICD/ROM

MultimediaDSSGIS

Internet

LaptopsWirelessTracking

Primary activities

Supportingactivities

MA

RG

inP

rofit

Inbound Operations Outbound Marketing Services

Infrastructure

HRM

Technology

Procurement

Application of Information Technology

Different levels

1. Strategic

2. Offensive

3. Defensive

4. Cost-justified

5. Controlled

Business Process Reengineering

What is BPR ?

More than automating Business Processes to make modest improvements inefficiency.

Fundamental rethinking and radical redesign to achieve dramatic improvements in cost, quality, speed and service.

Combination of :strategy of promoting business innovations;strategy of major improvements to operations.

Implementation via:use of self directed teamsuse of case managers

Spectrum of reengineering

Business Improvements Business Reengineering

Definition Incrementally improving Radically redesigningexisting processes business systems

Target Any process Strategic business processes

Potential payback 10% - 50% improvements 10-fold improvements

Risk and level of Low Highdisruption

What changes ? Same job but more efficient Big job cuts; new jobs;major job redesign

Primary enablers IT and work simplification IT and organizational redesign

Example: Order Management

Proposal Commitment Configuration Credit Delivery Billing Collections Checking

The order management process

Sales Manufacturing FinanceLogistics

Example: - IBM credit application process : from 4 specialists , 7 days

to 55% almost instantaneously 45% in one step by case managers.

Average time divided by 100.

Supporting Information Technologies

Prospect tracking and management systems

Portable sales force automation systems

Portable networking for field and customer site communication

Customer site workstations for order entry and status checking

Expert systems to match products and services to customer needs

EDI and electronic funds transfer between firms

Expert systems for configuration, shipping and pricing

Predictive modeling for continuous product replenishment

Composite systems that bring cross-functional information to employee workstations

Customer , product and production databases.

FORD Procurement System: before

Before reengineering: pay when invoice received.

500 employees

FORDpurchasing

Purchaseorder Vendor

FORDreceiving

Purchaseorder copy

Receivingdocument

Invoice

FORDaccountspayable Payment

Goods

FORD Procurement System: after

FORDPurchasing

FORDreceiving

FORDaccountpayable

Vendor

Goods

Payment

125 employees

After reengineering :Pay when goods received

Toughest Tasks

Installing the information technology infrastructure

Dealing with fear and anxiety throughout the organization

Managing resistance by key managers

Changing job functions career paths, recruitment or training

Designing the new business process

Having a clear vision of the new organization

Major Obstacles

Resistance to change

Limitations of existing systems

Lack of executive champions

Lack of executive consensus

Unrealistic expectations

Lack of cross-functional project team

Conditions

Establish great enough sense of urgency

Create powerfull enough guiding coalition

Formulate clear vision

Communicate vision Remove obstacles to new vision intensively

Systematic planning

Create short-term wins

Anchor changes in the corporation’s culture

Melliou and Wilson seven steps (1995)

1. Develop a vision

2. Identify performance gaps

3. Identify processes

4. Define process performance requirements

5. Identify IT capabilities

6. Measure performance achievements

7. Design a prototype