Strategic Management - Roadmap

 Strategy and strategic management

INTRODUCTION TO STRATEGIC MANAGEMENT  Strategic priorities at corporate, business and
operational levels
 Strategic management model
 Need of strategic management
 Strategic management process

Prof. Pradeep Dharmadasa, Dean , Faculty of Management

Lesson One and Finance, University of Colombo

Strategic Management Strategy

Management’s need to  What is strategy

 Grow the business  Literature on strategy goes back to the mid
 Attract and please customers 1960s.
 Compete successfully  Writings on military strategy go back much
 Conduct operations further – Sun Tzu wrote his book “ Art of War in
 Achieve target levels of organizational performance about the fourth centaury B.C.
Looking at Strategic Management Past Principles of War

 Strategy’s military roots  Nine principles taught by leading military

 Origin of the word is Greek referring to military academies that can be used in business to develop
commander strategies
 Historical references to the design of plans and actions  Objective: every operation should be directed to a
to gain an edge on the enemy clearly defined, decisive, and attainable objective
 The concept involves analyzing the situation and  Offensive: seize, retain, and exploit the initiative
effecting an appropriate response  Unity of command: forces must be under one
commander with full authority and responsibility
 Mass: concentrate combat power at the decisive place
and time

Principles of War Academic Influences in Strategy

 Economy of force: allocate on the essential  1911 Scientific management (Taylor) – Still in place today,
minimum of forces to secondary efforts some consider it micromanaging
 Maneuver: place the enemy in a position of  HBS requires a class in Business Policy in 1912
disadvantage through the flexible application of  Adam Smith’s “invisible hand” (the market) gives way to Alfred
Sloan (GM CEO from 1923-1946) concept of the “visible
combat power hand”—middle manager
 Surprise: strike at the enemy at a time or place  Chester Bernard influential book “The Executive” argues that
that is unexpected managers should pay attention to “strategic factors”
 Ronald Coase’s 1937 article “why firms exist” (Nobel Prize in
 Security: never allow an enemy to acquire an economics) and Joseph Schumpter’s concept of “disruptive
unexpected advantage technologies” written in 1942 bring in organizational
economics
 Simplicity: need clear plans and concise orders
 Max Weber warns against bureaucratic organizations but sees
a shift toward this way of organizing
 Strategy as a Subject of Study Recent Influences in Strategy

1960s Harvard case study What would you do if you were CEO?
 1960s (Strategy and structure; Corporate Strategy)
Corporate planning
60/70s Systematised and analytical approach  1963 Harvard business conference leads to SWOT analysis
 BCG founded in 1963 “strategy boutique”
Adaptive processes Complexity and uncertainty. Influence of  Created the portfolio analysis
1980s (Quinn) experience, politics, culture, history  Stars, dogs, cash cows, question marks

Market positioning Assessing competitive forces (5 forces) and

 1980s (Porter’s 5 forces)
1980s (Porter) positioning  1990s (Resource based view of the firm)
Resource based  2000s Knowledge based view
1980s theory (Hamel,
Unique resources, core competences
Prahalad, Barney)
Firms as organisms
1990s (Eisenhardt, Innovation to deal with change
Stacey)

Schools of Thought
Three Big Strategic Questions
School View – Strategy formulation

Design ... as a process of conception

 What’s the company’s present situation?
Planning ... as a formal process
 Where does the company need to go from here? Positioning ... as an analytical process
 Business(es) to be in and market positions to stake out Entrepreneurial ... as a visionary process
Cognitive ... as a mental process
 Buyer needs and groups to serve
Learning ... as an emergent process
 Direction to head
Power ... as a process of negotiation
 How should it get there? Cultural ... as a collective process

 A company’s answer to “how will we get there?” is its Environmental ... as a reactive process
strategy Configuration ... as a transformation
 Five Ps for Strategy Five Ps for Strategy

Definition Description
Definition Description
Strategies are made in advance of the
action to which they apply. Strategy is the creation of a unique and
As a plan As a position valuable position, involving a different set
Strategies are developed deliberately of activities.
and purposefully.
Strategy looks in to the grand vision of
A specific manoeuvre intended to outwit As a perspective enterprise and its content consisting of
As a ploy an opponent or competitor. the heads of strategists

Strategy is consistency in behaviour over

As a pattern time, whether or not intended.

Five Definitions, Ten schools Evolution of Formal Strategic Panning

Phase 1 Phase 2 Phase 3 Phase 4
Basic Financial Forecast based Externally oriented Strategic Plan
 Plan in the planning school Type of plan
planning planning planning (management)
Operational More effective Increasing response Orchestration of
 Position in the positioning school Control planning for growth to markets
competition
and all resources to
create competitive
Annual budget Environment
Functional focus analysis Situation analysis advantage
 Perspective in the entrepreneurial school Multi-year forecasts and competitive Strategically
Effectiveness assessment chosen planning
Static resource
of planning framework
 Pattern in the learning school process
allocation Evaluating
alternatives
strategic
Creative and
Dynamic resource flexible planning
 Ploy in the power school allocation process
Supportive value
systems and
climate
Target Meet budgets Predict the future Think strategically Create the future

SOURCE : GLUCK, KAUFMAN & WALLECK (1980). STRATEGIC MANAGEMENT FOR COMPETITIVE ADVANTAGE. HARVARD
BUSINESS REVIEW, P.157. 58(4): 154-161.
Definition of Strategy Definition ,,,,,

Strategy is the direction and scope of an

organisation 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.

Strategy: A firm’s theory about how to gain competitive advantages

Strategic Decisions
Definitions…….

Strategy is the determination of basic long term

goals of an enterprise, and the adoption of
courses of action and the allocation of
resources necessary for carrying out these goals
(Chandler, 1962, p.13).

‘Competitive strategy is about being different. It

means deliberately choosing a different set of
activities to deliver a unique mix of value. (Porter
Sources: A.D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise, MIT Press, 1963, p. 13
M.E. Porter, What is strategy?, Harvard Business Review, 1996, November–December, p. 60
 Strategic Management Strategy ……

Involves an organisation’s goals

 Interdisciplinary - does not focus on a specific area

Engages goal directed action
 External focus - involves the interactions of the

Includes a series of related decisions and actions
organization with its external environment)
throughout the various levels and divisions of an
 Internal focus - involves assessing the organization’s organization
resources, capabilities and competencies
Takes into account organizational internal strengths
 Future direction -predicting the future business (resources and capabilities) and external opportunities
climate for the organization and planning how the and threats
organization is to proceed

A Powerful Strategy Leads to Sustainable

Strategy statements Competitive Advantage

Strategy statements should have three main  A company achieves sustainable competitive
themes: advantage when an attractive number or buyers
 the fundamental goals that the organisation prefer its products/services over those of rivals and
seeks, which reflect the stated mission, vision when the basis for this preference can be maintained
and objectives; over time
 the scope or domain of the organisation’s
activities;  Its nice when a strategy produces a temporary
competitive edge but a durable edge over rivals
 and the particular advantages or capabilities it
greatly enhances a company’s prospects for winning
has to deliver all of these.
in the marketplace and realizing above-average
profits
Types of Strategies Types of Strategies

Strategy Meaning
Planned strategy for the future that an organisation
Intended develops on the basis of a series of analysis

Strategy that evolves (that is, it is not planned) in an

organisation on the basis of actions that the organisation
Emergent takes in reaction to external and internal pressures

Strategy that is implemented. It may be a combination

Realised of intended and emergent strategies

Intended Strategy Emergent Strategy

Mission and External Mission and Internal

goals analysis goals analysis

External Strategic Internal Strategic

analysis choice analysis choice.
Does it fit
?

Intended Strategy Emergent Strategy

Organising for Organisational

implementation grassroots
 Types of Strategies …..further Types of Strategies ……

Strategy Major Features Strategy Major Features

Strategies originate in formal plans: precise intentions
exist, formulated and articulated by central Strategies originate in shared beliefs: intentions exist as
Planned leadership, backed up by formal controls to ensure collective vision of all actors, in inspirational form and
Ideological relatively immutable, controlled normatively through
surprise-free implementation in benign, controllable or
predictable environment; strategies most deliberate indoctrination and/or socialization; organisation often
proactive vis-a-vis environment; strategies rather
deliberate

Entrepreneurial Strategies originate in central vision: intentions exist Strategies originate in constraints: leadership, in partial
as personal, unarticulated vision of single leader, and control of organizational actions, defines strategic
so adaptable to new opportunities; organisation Umbrella boundaries or targets within which other actors respond
under personal control of leader and located in to own forces or to complex, perhaps also unpredictable
protected niche in environment; strategies relatively environment; strategies partly deliberate, partly
deliberate but can emerge emergent and deliberately emergent

Types of Strategies ….. Types of Strategies

Strategy Major Features

Strategy Major Features
Strategies originate in process: leadership controls
Process process aspects of strategy (hiring, structure, etc.), Strategies originate in consensus: through mutual
leaving content aspects to other actors; strategies adjustment, actors converge on patterns that
Consensus
partly deliberate, partly emergent (and, again, become pervasive in absence of central or common
deliberately emergent) intentions; strategies rather emergent

Strategies originate in enclaves: actor(s) loosely Strategies originate in environment: environment

coupled to rest of organisation produce(s) patterns in dictates patterns in actions either through direct
Unconnected own actions in absence of, or in direct contradiction to, Imposed imposition or through implicitly pre-empting or
central or common intentions; strategies bounding organizational choice; strategies most
organizationally emergent whether or not deliberate emergent, although may be internalized by
for actors organization and made deliberate
 Strategy Types …………..Further Miles and Snow’s four strategies

 Based on strategy, Miles and Snow categorize

Three theories are important. organisations into four

 Miles and Snow’s four strategy types • Defenders - organisations whose strategy is to produce limited
set of products at a narrow segment of total potential market.
 Porter’s competitive strategies and • Prospectors – organisations whose strategy is to find and
exploit new products and market opportunities
 Bartlett and Ghoshal’s global strategy and structure
• Analyzers - organisations whose strategy is to move into new
products or markets only after their viability has been proven

• Reactors – a residual strategy that describes organisations that

follow inconsistent and unstable pattern

Miles and Snow’s four strategies

Porter’s strategy
Miles and Snow’s strategy typologies  Cost leadership

Strategy Goals Environment  Differentiation

Defender Stability and efficiency Stable

Analyzer Stability and flexibility Changing

Prospector Flexibility Dynamic

Bartlett and Ghoshal’s Four Strategic Types
Strategy Types …………..Further
Pressure to local responsiveness
Low High  Red ocean strategy - Companies try to outperform
Pressure to reduce costs High Global Transnational
their rivals to grab a greater share of existing
strategy Strategy demand. (W. Chan Kim &Renée Mauborgne)
Low Multi-domestic
Int’l strategy
Strategy  Blue ocean strategy - defined by untapped market
space, demand creation, and the opportunity for
 Int’l strategy – to transfer valuable skills and products knowledge to overseas highly profitable growth. Most are created from
markets
 Multi-domestic strategy – aims to achieve maximum local responsiveness with
within red oceans by expanding industry boundaries.
products customized to local conditions In blue oceans, competition is irrelevant. In long term,
 Global strategy – lowering costs by selling a common products on a global basis imitators arise, but experience shows there is a wide
Transnational strategy – attempts to achieve maximum local responsiveness while

achieving worldwide economies of scale window of opportunity to stay ahead of imitator

Strategy Types …………..Further Main Reasons for Creating Blue Oceans

• Supply often exceeds demand (business downturns)

• Increasing globalization
Red Ocean Strategy Blue Ocean Strategy
• Accelerated commoditization of products & services
Compete in existing market Create uncontested market
space space • Increasing price wars
Beat the competition Make the competition irrelevant • Shrinking profit margins
Exploit existing demand Create and capture new
demand • Brands (consumer & industrial) are becoming more similar
Make the value-cost trade-off Break the value-cost trade-off • Purchase choices based mainly on price
Align the whole system of a Align the whole system of a
strategic firm's activities with its firm's activities in pursuit of
choice of differentiation or low differentiation and low cost
cost VALUE INNOVATION!!
 Blue Ocean Strategy: Reconstruct Market
Blue Ocean Strategy: The Core Principles
Boundaries
Boundaries of Head-to-Head Creating
Competition Competition New Market Space
Focuses on rivals within its Looks across alternative Reconstruct Market Boundaries
Industry industries
industry
… overcome believes
Focuses on competitive position Looks across strategic groups
Strategic Group within its industry
within strategic group

Buyer Group
Focuses on better serving the
buyer group
Redefines the buyer group of the
industry
Reach Beyond Existing Demand
Looks across to complementary
… go for uncontested space
Focuses on maximizing the value
Scope of Product and product and service offerings that
of product and service offerings
Service Offerings go beyond the bounds of its
within the bounds of its industry
industry

Functional-emotional
Focuses on improving price- Rethinks the functional-emotional Get the Strategic Sequence Right
performance with the functional- orientation of its industry
Orientation of an
Industry
emotional orientation of this
industry
… value [innovation] first.
Focuses on adapting to external Participation in shaping external
Time/Trends trends over time
trends as they occur

Blue Ocean Strategy: Get the Strategic Strategy……

Sequence right
Buyer utility
Is there exceptional buyer Strategy is management’s “game plan” to
utility in your business idea?
No  Rethink
YES  Attract and please customers
Price
Is your price easily accessible to
the mass of buyers?
 Stake out a market position
No  Rethink
YES
Cost  Conduct operations
Can you attain your cost target to
profit at your strategic price? No  Rethink  Compete successfully
YES
Adoption  Achieve organizational objectives
What are the adoption hurdles in
actualizing your business idea?
Are you addressing them up No  Rethink
front?
YES
A Commercially Viable Blue Ocean Strategy!!
 Strategies for Better and for Worse
Why Are Strategies Needed?
Dimensions Advantages Disadvantages
Strategy sets Provides directions Serves as a set of
directions blinders to hide
To proactively shape To mold the potential dangers
how a company’s independent actions
business will be Strategy focuses Promotes coordination of No open to other
and decisions of effort activity possibilities
conducted managers and Strategy defines Provides people with a Define the
employees into a the organisation shorthand way to organisation too
coordinated, company- understand their simply
wide game plan organisation

Strategy provides Reduces ambiguity and Misinterpreting and

consistency provides order distorting effect

STRATEGIC MANAGEMENT MODEL FEEDBACK

The Basic Activities of Strategic Management
Perform external
audit to identify Establish Establish
key opportunities Long-term annul
and threats objectives objectives

Identify
Current Revise the Measure
Mision, business Allocate and
Objectives mission resources evaluate
And performance
Strategies

Perform internal
FEEDBACK

audit to identify Select

Devise
key strengths strategies
policies
and weaknesses to pursue

STRATEGY FORMULATION STRATEGY CONTROL &

IMPLEMENTATION EVALUATION
 Strategic Business Unit (SBU)
Levels of Strategy
 Corporate level
 Determine overall scope of the organisation
 A strategic business unit (SBU) is a part of
 Add value to the different business units an organisation for which there is a distinct
 Meet expectations of stakeholders external market for goods or services that is
 Business level (SBU) different from another SBU
 How to compete successfully in particular markets
 Operational
 How different parts of the organisation deliver the
strategy in terms of managing resources, processes and
people.

Business Strategy Diamond The Vocabulary of Strategy

Arenas
• Where will we be active? ( and with
how much emphasis?)
– Which product categories?
– Which channels?
 Mission – overriding purpose
Arenas – Which market segments?
– Which geographic areas?  Vision/strategic intent – desired future state
– Which core technologies
– Which value-creation strategies?  Goal – general statement of aim or purpose
Staging
• What will be our speed and Economic Vehicles
 Objective – quantification or more precise
Staging Vehicles
sequence of moves?
– Speed of expansion?
logic • How will we get there? statement of goal
– Internal development?
– Sequence of initiatives
– Joint ventures?
– Licensing/franchising?
 Strategic capability – resources, activities and
Economic logic
Differentiators
– Experimentation?
– Acquisitions?
processes
• How will returns be obtained?
– Lowest costs through scale Differentiators  Business model – how product, service and
advantages?
– Lowest costs through scope
• How will we win?
– Image?
information flow
and replication advantages
– Premium prices due to
– Customization?
– Price?
 Control – monitoring of action steps
unmatchable service? – Styling?
– Premium prices due to – Product reliability?
proprietary product features? – Speed to market? 51
Strategy and Operations Elements of Strategic Management
Strategic Management Operational Management

Organisation-wide, holistic Routinised  Understanding the strategic position of an

organisation
Conceptualisation of issues Techniques and actions
 Making strategic choices for the future
 Turning strategy into action
Creating new directions Managing existing resources

Developing new resources Operating within existing strategy

Ambiguous/uncertain Operationally specific

Long term Day to day issues

Strategic Position Strategic Position

Fundamental questions for Strategic position  The Organisation’s Environment

 Political Economic Social Technological Environmental
• What are the environmental opportunities and Legal
threats?  Sources of Competition
• What are the organisation’s strengths and
Opportunities and Threats
weaknesses?  Strategic Capability of the Organisation
• What is the basic purpose of the organisation?  Resources and Competences
• How does culture fit with the strategy?  Strengths and Weaknesses
Strategic Position Strategic Choices

 Expectations and Purposes Strategic choices involve the options for strategy
 Corporate Governance, Stakeholders, Ethics and in terms of both the directions in which strategy
Culture might move and the methods by which strategy
 Sources of Power and Influence might be pursued.
 Communication of Purpose: Mission and Objectives

Strategic Choices Strategy into Action

Fundamental questions for Strategic choice Strategy in action is about how strategies are
formed and how they are implemented.
• How should individual business units compete? The emphasis is on the practicalities of managing.
• Which businesses to include in the portfolio?
• Where should the organisation compete
internationally?
• Is the organisation innovating appropriately?
• Should the organisation buy other companies, form
alliances or go it alone?
 Strategy into Action Different Contexts for Strategy

Fundamental questions for Strategy in action The Exploring Strategy Model can be applied in many
contexts.
In each context the balance of strategic issues differs:
• Which strategies are suitable, acceptable and feasible?
 Small businesses (e.g. strategic purpose, growth
• What kind of strategy-making processes are needed? issues and retaining independence)
• What are the required organisation structures and  Multinational corporations (e.g. geographical
systems? scope; cultural issues and structure/control issues)
• How should the organisation manage the change  Public sector organisations (e.g. service/quality
needed? and managing change issues)
• Who should do what in the strategy process? Which  Not for profit organisations (e.g. purpose and
people and what activities. funding issues)

Strategy is needed because….

Strategic Management

 Benefits of Strategic Management  A company’s strategy is a work in progress

 Long term orientation and fit between environment, strategy,  Changes may be necessary to react to
structure and processes may lead to competitive advantage
 Shifting market conditions
 Challenges: Globalisation & E-Commerce
 Technological breakthroughs
 Globalization
 Internationalistion of markets and corporations  Fresh moves of competitors
 Markets: global than national markets  Evolving customer preferences
 Electronic Commerce  Emerging market opportunities
 Internet to conduct business transactions
 New ideas to improve strategy
 Basis for competition on a more strategic level rather than
traditional focus on product features and costs  Crisis situations
 Strategy is needed because…. Objectives

 Objectives are the end results of planned activity.

 A compelling need exists for managers They state what is to be accomplished by when and
to proactively shape how a firm’s should be quantifiable if possible.
business will be conducted
 The term “goal” is often used interchangeably with the
term “objectives.”
 A strategy-focused firm is more likely
to be a strong bottom-line performer  Goal is an open-ended statement of what one wants
than one that views strategy as secondary to accomplish with no justification of what is to be
accomplished and no time criteria for competition.

Objectives Objectives

 Specific results that an organization seeks to

achieve……..  Specific Precise and understandable
 Long-term objectives  Measurable in order to confirm achievement
……in pursuing its basic mission.
 Agreed with those responsible
 Short-term objectives
……in order to achieve its long-term objectives
 Realistic achievable
 Times deadline
 TYPES OF OBJECTIVES
Potential areas for objective setting
REQUIRED
 Product Financial Objectives Strategic Objectives
 Productivity Outcomes focused Outcomes focused on
 Market on improving financial improving competitive vitality
 Profitability and future business position
performance
 Research and innovation
 Human resources
 Financial resources
 physical resources $

EXAMPLES: FINANCIAL EXAMPLES: STRATEGIC

OBJECTIVES OBJECTIVES
 X % increase in annual revenues  Winning an X % market share
 X % increase annually in after-tax profits  Achieving lower overall costs than rivals
 X % increase annually in earnings per share  Overtaking key competitors on product performance or quality or
customer service
 Annual dividend increases of X %
 Deriving X % of revenues from sale of new products introduced in
 Profit margins of X % past 5 years
 X % return on capital employed (ROCE)  Achieving technological leadership
 Increased shareholder value  Having better product selection than rivals
 Strong bond and credit ratings  Strengthening company’s brand name appeal
 Sufficient internal cash flows to fund 100% of new  Having stronger national or global sales and distribution
capabilities than rivals
capital investment
 Consistently getting new or improved products to market ahead
 Stable earnings during periods of recession of rivals
Strategy Formulation Strategy Implementation

 Selecting Strategy
 Corporate strategy (Stability, Growth,
Retrenchment)
 Business strategy (Competitive, Cooperative)
 Functional strategy (Technological Leadership,
Technological Followership)
 Defining Policies
 Guidelines for decision making that links
formulation to implementation

Evaluation & Control Cascade approach

 Type of goals Responsibility

 Evaluation and control is the process in which  Mission Top management
corporate activities and performance results are  L/R objectives Top management
monitored so that actual performance can be
 S/R objectives Top management
compared with desired performance
 SBU L/R S/R objective SBU management
 Functional Functional Mgt
 Sub units Sub units Mgt
 Individuals individual employees
 Strategy from Economic Perspective

ATC ATC
P MC MC

P D
D

MR

Q Q
(D=MR=Price)

Thriving! Surviving