STRATEGIC MANAGEMENT 1. Basic concepts Hungarian competitiveness Prof. Gábor PAPANEK www.ektf.hu/~papanek papanek@gki.hu 1 Introduction 1. The subject of strategic management is: how to manage economic actions. I will present principles and methods of economic decision making. This topic is general, which is important for everybody, e.g. for businessmen, and economists interested in regional or national economic policy. In addition I will mention some characteristics of the EU and Hungarian position. On the slides the most important words, statements are written in red, the others in black, but some additional information in blue colour (figure). 2 Source: www.gt2006.freeblog.hu/albumunk/argentina - Iguaçu 3 Introduction 2. The titles of my presentations during the semester: • Basic concepts • Techniques of strategic planning 1 -2 • Strategy implementation • Financial strategies • Innovation management • Regional development strategies • Economic policy 4 Introduction 3. (definitions) Economy is a system of goods, persons, organisations which operates to fulfil people’s needs. Main economic actors are households, companies and the government (figure). Companies are endowed with the resources used in the production from the families and pay for them. They produce products and sell these to the families. The state controls these processes collecting taxes and giving subventions - and regulating the markets. Economics: Scientific analysis of human behaviour, the objective of which is the use of the scarce resources for the provision of households. 5 Simple system with a feedback regulator information materials measuring basic process regulation products War system command „A” military operation army „A” army „B” war equipment command „B” Economic system state wages, products families manpower, money firms Source: own figure based on many publications 6 Introduction 3. Firm (company or enterprise): independent business organisation. Creation of a firm can be rational, if transaction costs of the given business are smaller in case, if the work is organised in the frame of one enterprise, than with the help of commercial connections of independent firms (R. Coase). The life „story” of a firm can be described by its life cycle, which is similar to the well-known product life cycle (figure). We can distinguish small, medium- sized enterprises and large corporations (table). 7 Life cycle of a firm money revenue technological and market uncertainty cash flow time present value of cash flow time of return 1 pre-foundation 2 market entry 3 growth 4 maturity 5 decline 6 renewal Source: own figure based on many publications 8 Small-, medium-sized enterprises and large companies Micro Small Medium Criteria size enterprises Number of employees <10 <50 <250 Revenue, million euro <2 <10 <50 Total assets/equity <2 <10 <43 Autonomy There is no institutions which has more than 25 % participation in the firm’s capital SME: small- and medium-sized enterprise 9 Source: www.gt2006.freeblog.hu/albumunk/bolivia - La Paz 10 Introduction 4. The legal forms of firms and their liability. Owners’ liability in the corporations with legal entity is limited, the owners are liable for the actions of their enterprise to the extent of their ownership only. Owners’ liability in partnerships without legal entity and in the private entrepreneurships (sole proprietors) is unlimited, the owners are liable to the extent of all their property. 11 Introduction 5. Two main methodical approaches to research are: Induction; it is a process of reasoning in which some facts (observations) prove the validity of a conclusion. Deduction; it is a process of reasoning in which a conclusion follows necessarily from the premises presented. We have to use both type of methods, if we prove a statement. Literature: Babbie, E.: The practice of social research. Wadsworth P. Co. 1989. 12 Management Management is a set of activities directed at the efficient and effective utilization of resources in the pursuit of one of more goals. In management, skills are always important, but often the successful manager has to be an „artist” as well. Functions of management are planning, leading, organisation, coordination, control (H. Fayol - citations). 13 Some views: „To manage is to forecast and plan, to organise, to command, to coordinate and to control” Fayol 1916 „Management is a social process… the process consists of … planning, control, coordination and motivation” Brech 1957 „The five essential managerial functions are: planning, organising, staffing, directing and leading and controlling” Koontz-O’Donnel 1976 Source: presentation of Mr. B. Borsi 14 Todays in strategic management one of the most cited author is Michael PORTER. He put competition in the centre of his analysis. But he mentioned that in many cases the co-operation can be important as well. The oldest manual about the „management” knowledge is the Panchatantra (an old Indian book from the II. century B. C.). It says that the King has to be skilled first of all in acquisition and loss of friends, war, loss of properties, and they have to avoid rash actions. All these are important even today’s market competition. 15 Plans 1. Planning is the first function of the management. A plan is a document which defines the goals of an organisation (or a person) and the way of their fulfilment. The main types of enterprises’ plans are the mission, the strategy and the tactics. The mission is a brief description of the reason for the firm’s existence. It is always fixed by the owners. Example: B. Gates mission was to give personal computer to all US families. The strategy formulates the broad goals, and the tools of realisation of an organisation in an extended time frame. The tactics focus the people and actions which implement 16 the strategy. The most important strategy concepts: Vision: what does the company see for the future? Mission: why does the company exist? Strategy: covers the definition of objectives as well as the methods and tools to help reaching the objectives. Objective: they say, what does the company want to implement in a given time? Tools: the way defined to fulfil the mission and objectives, at the end of which the vision becomes reality. Strategic action: a main task derived from strategic objectives often formulated as „projects”. Source: presentation of Mr. B. Borsi 17 The interdependence of different plans, especially the feedback is always important (figure). Example: The late 1800s a US railway co. said, that its mission is the transport of persons and commodities by train. It was successful for a long time. In the 1950s the Co. went bankrupt. The analysis stated, that the cause was leaving the mission unchanged after the general use of automobiles. The failure could have been avoided, if the mission changed to include transport by all transport vehicles. 18 Interdependence of different plans Source: own figure based on many publications 19 Plans 2. In small enterprises decision making – and other tasks of planning – are the duty of the owner(s) and (if there is) of the top manager(s). The development of the mission and the strategy can be informal (it is not obligatory to write them). The only plan which has to be formal can be the business plan. In small firms the business plan projects the revenues and costs of a given period, or program. 20 In all big companies, there is a division of labour between the top manager (the boss) and the managers of functional departments or divisions. Subsidiarity is an old, but EU conform principle of this division of labour, in accordance of which the decisions must be made on the specific level, where the potential decision makers have the maximum information. The organisational form of a large company’s management can be functional, divisional or matrix type (figure). 21 Functional type organisation of a firm top management factory 1. functional departments factory 2. factory 3. Divisional organisation top management product manager 1. product manager 2. functional specialists factories functional specialists factories Matrix type organisation top management Product manager 1. functional department 1. functional department 2. Product manager 2. factories factories Source: own figure based on many publications 22 In all type of management the main goals are always indicated by the boss, the details are developed by the departments (divisions). Their harmonisation process is a sort of bargaining, the boss has to take the principle of subsidiarty, the other managers the responsibility of the boss into consideration. 23 Competitiveness of the EU – especially Hungary Nowadays the most competitive regions of the World are USA, Japan – and, in spite of their backwardness, China and India. In Europe the most developed economic space is the „blue banana” (figure). But competitiveness (GDP per capita) of the majority of EU-15 countries is weak (table). Example: Europe does not have good market positions in the nuclear, military or IT industries. Central Europe have always fighted, and is still fighting for catching-up. Actually Hungary is not successful (in spite of the high machinery production and export) . 24 The „blue banana” 25 GDP per capita, USD Source: IMD (Institute for Management Development): World Competitiveness Yearbook 26 In 2009 per capita GDP was 14 900 Euros in Hungary (at the official exchange rate). It is very low in comparison with the West-Europeans, but higher than in the East. 27 Distribution of the gross value added by industries, % 2009 Agriculture, hunting, forestry, fishing 3 Mining, manufacturing, gas etc. supply25 Constructions 5 Services 67 Total 100 Source: Hungary in statistics. www.ksh.hu 28 Foreign trade of products and services, 2009 (Million euro) Products Food, drinks, tobacco Raw materials Energy Manufactured products Machines, transportation facilities Total Services Tourism Transport Business services Services of government Total Source: Hungary in statistics. www.ksh.hu Import Export Balance 3 072 933 6 171 17 673 27 669 55 518 4 301 1 308 1 635 16 079 36 174 59 497 1 229 374 –4 536 –1 594 8 505 3 979 2 608 1 780 6 769 154 11 311 4 080 2 511 6 164 97 12 852 1 472 731 –605 –57 1 541 29 Thank you for your attention! 30