Lecture L1

Introducing Strategy
“Strategy is the direction and scope of an organization over the
long term, which achieves advantage in a changing environment
through its configuration of resources and competences with the
aim of fulfilling stakeholder expectations”.
This is a broad statement for the longer term and it is used to
drive the details of the specific short and long- range plans. It is
the way of stating the current / present and upcoming future
position of the company, and the objective, goals, major policies
and required for taking the company from where it is to where it
wants to be.
It is a general framework that provides guidance for actions to be
taken and, at the same time is shaped by the actions taken. it is
journey between Imagination and actual make .
Characteristics of Strategic Decisions

 Long-term direction
 Scope of an organization’s activities

 Competitive advantage
 Strategic fit with business environment.
 Organization resources and competences.
 Values and expectations of power players.
The strategic decisions are likely to affect the long –term
direction of an organization. Strategy can also be seen
as 'stretching' an organization's resources and competences
to create opportunities or capitalize on them. It is not just
 about countering environmental threats and taking advantage
of environmental opportunities; it is also about matching
organizational resources to these threats and opportunities.
There would be little point in trying to take advantage of some
new opportunity if the resources needed were not available or
could not be made available, or if the strategy was rooted in
an inadequate resource-base.

Implications of Strategic Decisions

 Complexity

 Integration

 Relationships and networks

 Change

 Uncertainty

 Operational decisions

Levels of Strategy
☻Corporate-level strategy
☻Business-level strategy
☻Operational strategy

Level of
Definition Example
Strategy

Corporat
Diversification into new product or
e Market definition
geographic markets
strategy
Level of
Definition Example
Strategy

Attempts to secure competitive

Business
Market navigation advantage in existing product or
strategy
geographic markets

Support of Information systems, human resource

Function
corporate strategy practices, and production processes
al
and business that facilitate achievement of
strategy
strategy corporate and business strategy

The basic purpose of strategy is “how the organization will be

different form other organization.

Corporate-level strategies address the entire strategic scope of

the enterprise. This is the "big picture" view of the organization
and includes deciding in which product or service markets to
compete and in which geographic regions to operate. For multi-
business firms, the resource allocation process—how cash,
staffing, equipment and other resources are distributed—is
typically established at the corporate level. There four it know as
corporate level strategies.

The Business level of strategy concerned with the question,

“How do we compete?” Pertains to each business unit or
product line within the organization.

The operational level of strategy concerned with the question,

“How do we support the business-level strategy?” Pertains to
all of the organization’s major departments.

What is a Strategic Business Unit?

A strategic business unit (SBU) is a part of an organization for
which there is a distinct external market for goods or services that
is different from another SBU.
A strategic business unit is a significant organization segment that
is analyzed to develop organizational strategy aimed at generating
future business or revenue.
Exactly what constitutes an SBU varies from organization to
organization. In larger organizations, an SBU could be a company
division, a single product, or a complete product line. In smaller
organizations, it might be the entire company.1 although SBUs
vary drastically in form, they have some common characteristics.
All SBUs are a single business (or collection of businesses), have
their own competitors and a manager accountable for operations,
and can be independently planned.
Vocabulary of Strategy
 Mission: Identifies overall purpose of the organization. Defines
the scope and the boundary of the business. What business
are we in?
 Vision or strategic intent: desired future state of the
organization.

 Goal is the general aim in line with the mission may be

qualitative in nature.

 Objectives are quantifiable in nature

Vocabulary of Strategy: Nokia

 Vision/Mission.
Connecting is about helping people feel close to what matters.
Wherever, whenever, Nokia believes in communicating, sharing,
 and in the awesome potential in connecting the 2 billion who do
with the 4 billion who don’t.
What is Strategic Management?
Strategic management includes understanding the strategic
position of a organization, making strategic choices for the future,
and managing strategy in action.

Strategic management vs operational management

Strategic Management Operation Management

 Ambiguous/Uncertain ◙ Re-utilized
 Complex ◙ Operationally specific
 Organization wide ◙ Short term implication

 Fundamental

 Long term implication

The Exploring Corporate Strategy Model

What is Strategic Position?

Strategic position is concerned with the impact on strategy of the

external environment, an organization’s strategic capability and
the expectations and influence of stakeholders.
A strategic position statement is kind of like a statement for your
company. You want to explain this statement how you view your
company and how you view it within the rest of your marketplace.
What are Strategic Choices?

Strategic choices involve understanding the underlying bases for

future strategy at both the business unit and corporate levels and
the options for developing strategy in terms of both the directions
and methods of development.
Strategic choice is the second element of the strategy
formulation process.
Choice is at the centre of strategy formulation. If there are no
choices to be made,
There can be little value in thinking about strategy at all.
This relatively modest interpretation of the word strategic mean
that the view of planning as strategic choice is one that can be
applied not only to decision making in formal organizational
settings, but to the choices and uncertainties which people face in
their personal and community lives. Ex , any of us might find
Ourselves involved in a process of strategic choice in addressing
the problem of Where and when to go on holiday next year, or
how to sell an unwanted vehicle, or how to deal with a difficult
request from a relative or friend . of course, the craft of choosing
strategically becomes more complicated where it involves
elements of collective choice – of negotiation with others who view
problems and possibilities in different ways.
What is Strategy in Action?
Strategy in action is concerned with ensuring that strategies are
working in practice.
Most organizations have a strategy. Many strategies fail. Why?
Strategies are seldom implemented properly because a suitable
framework is missing – an architecture that reaches from strategy
conception to strategy implementation and sustainability.

Lecture 2
Strategy Making and strategy Execution Process

Strategists are CEO, Top Management team and practicing

managers

Characteristics of Effective Strategy Leaders

• Mastery of analytical concepts and techniques
• Social and influencing skills
• Group acceptance as a player
What is a Strategic Planner?
What is a Strategic Planner?
Tasks performed by strategic planners
Information and analysis, devising the strategy process
and working on special projects
Roles Played by
Strategy Consultants
Analysing, prioritising,
and generating options
Transferring knowledge

Promoting strategic decisions

Implementing strategic change

Lecture 3
Henry Mintzberg (1998) suggests that authors on strategy characterise its
meaning in one or more of the following 5 ways

1. A Ploy

2. A Position

3. A Perspective

4. A Plan

5. A Pattern
Kevin Hinde. EC490 Corporate and Strategic Management Division of
Economics, University of Northumbria 17

The first two are concerned quite openly with the issue of competitive
strategy. Ploy refers to outwitting a rival. Position is about how an
organisation places itself in the market. Both are concerned with obtaining a
competitive advantage through the existence of core competence.

The view that strategy is a perspective identifies with those organisations

where there is a powerful group of strategy makers. It is their whims,
predilections and personality that influence organisational direction. This, of
course, raises an issue about whether such views reflect an organisational
consensus.

Most organisations have a strategic plan - a consciously intended course of

action, general or specific. However, Mintzberg (1990), as you will note
later, is very critical of what he calls the Design School of strategic
management. He implies that this approach relies heavily on a group of
decision-makers (strategy as a perspective) and that the formulation of
strategy is detached from its implementation. He asks how such
organisations can venture into new markets. What is required is ‘crafting’,
which is in marked contrast to planning.

“Craft invokes traditional skill, dedication, perfection, mastery

through detail. What springs to mind is not so much thinking
and reason as involvement, a feeling of intimacy and harmony
with the materials at hand, developed through long experience
and commitment. Formulation and implementation merge into a
fluid process of learning through which creative strategies
emerge.” (Mintzberg (1987) p.66).

Interestingly, Mintzberg identifies strategy as a pattern because planners

may justify what they have done even though it did not follow from the
original plan. After having taken action, we reflect on what we have done
and define it as a consistent pattern - whether or not it was intended.
Because we "see" a pattern what we do is ascribe it as being intentional
strategy - "the pattern stems from our plan!"

However, there has been no overseeing intention. Some plans may never be
implemented or see the light of day. In the same way, a pattern of actions
may arise without preconceived, integrative planning. Indeed, they can
arise through the political, cultural and social forces that operate within and
upon the organisation.

Mintzberg identifies with two sorts of strategy – deliberate and emergent.

�A deliberate strategy is an intended plan that is then realised (or

otherwise).

�An emergent strategy arises from other sources, usually political and
cultural or through imposition (possibly by an event over which the
organisation has no control).

Lecture 4
Strategic Position – Strategic position of the company can be
understood by studying the Environment, Strategic capability ,
purpose of the organisation and the Culture of the organization .

Environment
Business Environment consists of the following structure

• MacroEnvironment

• Industry/Sector

• Competitors

• Organisation
Macro environment can be studied by the PESTEL
framework, Key Drivers and The Scenarios
Pestel Framework includes

• Political Environment-govt policies, regulations

• Economic- Related with economic monitory, fiscal policies

 • Social- cultural and social practices

• Technological-

• Environmental- Natural resources

• Legal- Legal laws

Key drivers for change are environmental factors that are likely
to have a high impact on the success or failure of strategy. We
chose those elements in the pestel framework which have high
impact. Those are the key drivers.
Scenarios are detailed and plausible views of how the business
environment of an organisation might develop in the future based
on key drivers for change about which there is a high level of
uncertainty.
Scenario 1 –what is the effect and strategy if it rains
Scenario 2 – what is the effect and strategy if it does not rains.
We chose the key drivers and construct the scenarios for them
and then develop our strategy
Industry and Sectors
To study the environment of industry and sector we need to
study the competitive forces, Industry life cycle and competing
cycles.
Competitive Forces
Porter explains that there are five forces that determine industry
attractiveness and long-run industry profitability. These five "competitive
forces" are

- The threat of entry of new competitors (new entrants)

- The threat of substitutes
- The bargaining power of buyers
- The bargaining power of suppliers
- The degree of rivalry between existing competitors

Threat of New Entrants

New entrants to an industry can raise the level of competition, thereby

reducing its attractiveness. The threat of new entrants largely depends on
the barriers to entry. High entry barriers exist in some industries (e.g.
shipbuilding) whereas other industries are very easy to enter (e.g. estate
agency, restaurants). Key barriers to entry include

- Economies of scale
- Capital / investment requirements
- Customer switching costs
- Access to industry distribution channels
- The likelihood of retaliation from existing industry players.

Threat of Substitutes

The presence of substitute products can lower industry attractiveness and

profitability because they limit price levels. The threat of substitute products
depends on:

- Buyers' willingness to substitute

- The relative price and performance of substitutes
- The costs of switching to substitutes

Bargaining Power of Suppliers

Suppliers are the businesses that supply materials & other products into the
industry.

The cost of items bought from suppliers (e.g. raw materials, components)
can have a significant impact on a company's profitability. If suppliers have
high bargaining power over a company, then in theory the company's
industry is less attractive. The bargaining power of suppliers will be high
when:

- There are many buyers and few dominant suppliers

- There are undifferentiated, highly valued products
- Suppliers threaten to integrate forward into the industry (e.g. brand
manufacturers threatening to set up their own retail outlets)
- Buyers do not threaten to integrate backwards into supply
- The industry is not a key customer group to the suppliers

Bargaining Power of Buyers

Buyers are the people / organisations who create demand in an industry

The bargaining power of buyers is greater when

- There are few dominant buyers and many sellers in the industry
- Products are standardised
- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyer's industry
- The industry is not a key supplying group for buyers

Intensity of Rivalry

The intensity of rivalry between competitors in an industry will depend on:

- The structure of competition - for example, rivalry is more intense
where there are many small or equally sized competitors; rivalry is less
when an industry has a clear market leader

- The structure of industry costs - for example, industries with high

fixed costs encourage competitors to fill unused capacity by price cutting

- Degree of differentiation - industries where products are commodities

(e.g. steel, coal) have greater rivalry; industries where competitors can
differentiate their products have less rivalry

- Switching costs - rivalry is reduced where buyers have high switching

costs - i.e. there is a significant cost associated with the decision to buy a
product from an alternative supplier

- Strategic objectives - when competitors are pursuing aggressive growth

strategies, rivalry is more intense. Where competitors are "milking" profits
in a mature industry, the degree of rivalry is less

- Exit barriers - when barriers to leaving an industry are high (e.g. the cost
of closing down factories) - then competitors tend to exhibit greater rivalry.

Industry Life Cycle

Cycle of competition
In the Competitor Environment we study the strategic groups,
market segments and the strategic customers

Strategic groups are organisations within an industry with similar strategic

characteristics, following similar strategies or competing on similar bases.

Characteristics for Identifying Strategic Groups- strategic group differs on

this basis

Scope of activities

 Extent of product diversity

 Extent of geographic coverage
 Number of segments served
 Distribution channels

Benefits of Identifying Strategic Groups

• Understanding competition
• Understanding competition
• Analysis of mobility barriers

A market segment is a group of customers who have similar needs that

are different from customer needs in other parts of the market.

Bases Of Market Segmentation

A strategic customer is the person(s) at whom the strategy is primarily
addressed because they have the most influence over which goods or
services are purchased.

A strategic customer is the person(s) at whom the strategy is primarily

addressed because they have the most influence over which goods or
services are purchased.

 A strategic Gap is an opportunity in the competitive environment that

is not fully exploited by competitors

To understand the environment of the Organisation the companies

goes for the SWOT analysis

SWOT is an abbreviation for Strengths, Weaknesses, Opportunities

and Threats

SWOT analysis is an important tool for auditing the overall strategic position
of a business and its environment.

Once key strategic issues have been identified, they feed into business
objectives, particularly marketing objectives. SWOT analysis can be used in
conjunction with other tools for audit and analysis, such as PEST analysis
and Porter's Five-Forces analysis. It is also a very popular tool with business
and marketing students because it is quick and easy to learn.

The Key Distinction - Internal and External Issues

Strengths and weaknesses are Internal factors. For example, a

strength could be your specialist marketing expertise. A weakness could be
the lack of a new product.

Opportunities and threats are external factors. For example, an

opportunity could be a developing distribution channel such as the Internet,
or changing consumer lifestyles that potentially increase demand for a
company's products. A threat could be a new competitor in an important
existing market or a technological change that makes existing products
potentially obsolete.

it is worth pointing out that SWOT analysis can be very subjective - two
people rarely come-up with the same version of a SWOT analysis even when
given the same information about the same business and its environment.
Accordingly, SWOT analysis is best used as a guide and not a prescription.
Adding and weighting criteria to each factor increases the validity of the
analysis.

Areas to Consider

Some of the key areas to consider when identifying and evaluating

Strengths, Weaknesses, Opportunities and Threats are listed in the example
SWOT analysis below:
Lecture -5

Strategic capability refers to the resources and competences of an

organisation needed for it to survive and prosper
The idea is to convert the threshold resources to the unique
resources and the threshold competencies to the Core competence

Tangible resources are physical assets of an organisation such as

plant, labour, and finance.

Intangible resources are non-physical assets such as information,

reputation, and knowledge.

Resources are physical, financial, human and intellectual resources

Core competences are the skills and abilities by which resources

are deployed through an organisation’s activities and processes
such as to achieve competitive advantage in ways that others
cannot imitate or obtain.

How can we achieve cost efficiency

• By economies of scale
• By enhancing product design
• reducing the supply cost
• By experience

Economies of scale: production level should be such so as to meet

the cost of the plant setup, capacity and resources which is very
high.

Supply cost is influenced by location, ownership of raw material,

etc.

 Competences in activities develop over time based on

experience, resulting in cost efficiencies
 Growth may not be optional
 Unit costs should decline year on year
 First mover advantage is important

Core Competences Lead to Competitive Advantage When…

 They relate to an activity that underpins the value in the

product features
 They lead to levels of performance that are significantly better
than competitors
 They are difficult for competitors to imitate
Dynamic capabilities are an organisation’s abilities to renew and
recreate its strategic capabilities to meet the needs of a changing
environment.

Organisational knowledge is the collective experience accumulated

through systems, routines, and activities of sharing across the
organisation.

Strategic Capability of the company can be found out by

1. Value Chain / Networks

2. Activity maps
3. Benchmarking
4. SWOT analysis

A value chain describes the categories of activities within and

around an organisation, which together create a product or service.
Value Chain Analysis describes the activities that take place in a business
and relates them to an analysis of the competitive strength of the business.
Influential work by Michael Porter suggested that the activities of a business
could be grouped under two headings:

(1) Primary Activities - those that are directly concerned with creating
and delivering a product (e.g. component assembly); and

(2) Support Activities, which whilst they are not directly involved in
production, may increase effectiveness or efficiency (e.g. human resource
management). It is rare for a business to undertake all primary and support
activities.

Value Chain Analysis is one way of identifying which activities are best
undertaken by a business and which are best provided by others ("out
sourced").

Linking Value Chain Analysis to Competitive Advantage

What activities a business undertakes is directly linked to achieving

competitive advantage. For example, a business which wishes to
outperform its competitors through differentiating itself through higher
quality will have to perform its value chain activities better than the
opposition. By contrast, a strategy based on seeking cost leadership will
require a reduction in the costs associated with the value chain activities, or
a reduction in the total amount of resources used.

Primary Activities

Primary value chain activities include:

Primary Description
Activity
Inbound All those activities concerned with receiving and storing
logistics externally sourced materials
Operations The manufacture of products and services - the way in which
resource inputs (e.g. materials) are converted to outputs
(e.g. products)
Outbound All those activities associated with getting finished goods and
logistics services to buyers
Marketing Essentially an information activity - informing buyers and
and sales consumers about products and services (benefits, use, price
etc.)
Service All those activities associated with maintaining product
performance after the product has been sold

Support Activities

Support activities include:

Secondary Description
Activity
Procuremen This concerns how resources are acquired for a business (e.g.
t sourcing and negotiating with materials suppliers)
Human Those activities concerned with recruiting, developing,
Resource motivating and rewarding the workforce of a business
Managemen
t
Technology Activities concerned with managing information processing
Developme and the development and protection of "knowledge" in a
nt business
Infrastructu Concerned with a wide range of support systems and
re functions such as finance, planning, quality control and
general senior management

Steps in Value Chain Analysis

Value chain analysis can be broken down into a three sequential steps:

(1) Break down a market/organisation into its key activities under each of
the major headings in the model;

(2) Assess the potential for adding value via cost advantage or
differentiation, or identify current activities where a business appears to be
at a competitive disadvantage;

(3) Determine strategies built around focusing on activities where

competitive advantage can be sustained

A value network is the set of interorganisational links and

relationships that are necessary to create a product or service.

Activity Maps

 It shows how the different activities of an organisation are

linked together. .
 It can be developed by using network diagrams or by using
computer programs.

BenchMarking

Benchmarking is the process of identifying "best practice" in relation to

both products (including) and the processes by which those products are
created and delivered. The search for "best practice" can taker place both
inside a particular industry, and also in other industries (for example - are
there lessons to be learned from other industries?).
The objective of benchmarking is to understand and evaluate the
current position of a business or organisation in relation to "best practice"
and to identify areas and means of performance improvement.

The Benchmarking Process

Benchmarking involves looking outward (outside a particular business,

organisation, industry, region or country) to examine how others achieve
their performance levels and to understand the processes they use. In this
way benchmarking helps explain the processes behind excellent
performance. When the lessons learnt from a benchmarking exercise are
applied appropriately, they facilitate improved performance in critical
functions within an organisation or in key areas of the business
environment.

Application of benchmarking involves four key steps:

(1) Understand in detail existing business processes

(2) Analyse the business processes of others

(3) Compare own business performance with that of others

analysed

(4) Implement the steps necessary to close the performance gap

Benchmarking should not be considered a one-off exercise. To be effective,

it must become an ongoing, integral part of an ongoing improvement
process with the goal of keeping abreast of ever-improving best practice.

Types of Benchmarking

There are a number of different types of benchmarking, as summarised

below:

Type Description Most Appropriate

for the Following
Purposes
Strategic Where businesses need to improve - Re-aligning business
Benchmarkin overall performance by examining the strategies that have
g long-term strategies and general become inappropriate
approaches that have enabled high-
performers to succeed. It involves
considering high level aspects such
as core competencies, developing
new products and services and
improving capabilities for dealing with
changes in the external environment.
Changes resulting from this type of
benchmarking may be difficult to
implement and take a long time to
materialise

Performance Businesses consider their position in _ Assessing relative

or relation to performance level of performance
Competitive characteristics of key products and in key areas or
Benchmarkin services. Benchmarking partners are activities in
g drawn from the same sector. This comparison with
type of analysis is often undertaken others in the same
through trade associations or third sector and finding
parties to protect confidentiality. ways of closing gaps
in performance

Process Focuses on improving specific critical - Achieving

Benchmarkin processes and operations. improvements in key
g Benchmarking partners are sought processes to obtain
from best practice organisations that quick benefits
perform similar work or deliver similar
services. Process benchmarking
invariably involves producing process
maps to facilitate comparison and
analysis. This type of benchmarking
often results in short term benefits.
Functional Businesses look to benchmark with - Improving activities
Benchmarkin partners drawn from different or services for which
g business sectors or areas of activity counterparts do not
to find ways of improving similar exist.
functions or work processes. This sort
of benchmarking can lead to
innovation and dramatic
improvements.

Internal involves benchmarking businesses or - Several business

Benchmarkin operations from within the same units within the same
g organisation (e.g. business units in organisation
different countries). The main exemplify good
advantages of internal benchmarking practice and
are that access to sensitive data and management want to
information is easier; standardised spread this expertise
data is often readily available; and, quickly, throughout
usually less time and resources are the organisation
needed. There may be fewer barriers
to implementation as practices may
be relatively easy to transfer across
the same organisation. However, real
innovation may be lacking and best in
class performance is more likely to be
found through external
benchmarking.

External involves analysing outside - Where examples of

Benchmarkin organisations that are known to be good practices can be
g best in class. External benchmarking found in other
provides opportunities of learning organisations and
from those who are at the "leading there is a lack of good
edge". This type of benchmarking can practices within
take up significant time and resource internal business units
to ensure the comparability of data
and information, the credibility of the
findings and the development of
sound recommendations.
International Best practitioners are identified and - Where the aim is to
Benchmarkin analysed elsewhere in the world, achieve world class
g perhaps because there are too few status or simply
benchmarking partners within the because there are
same country to produce valid insufficient"national"
results. Globalisation and advances in businesses against
information technology are increasing which to benchmark.
opportunities for international
projects. However, these can take
more time and resources to set up
and implement and the results may
need careful analysis due to national
differences

SWOT: Discussed earlier