CHAPTER 1: STRATEGIC MANAGEMENT
DEFINITION OF STRATEGY
“…formulation of organizational objectives , competitive scopes, and
action plans for gaining advantage…”- Belcourt & McBey (2000)
Henry Mintzberg (1994) points out 4 common uses of “strategy”
• It’s a plan, a “how”, a means of getting from here to there
• It’s a pattern in actions over time
• Strategy is a position; that is, it reflects decisions to offer particular
markets
• Strategy is perspective; that is, vision and direction
Kenneth Andrews(1971) defines corporate strategy as “…the pattern of
decisions in a company that determines and reveals its objectives,
purposes, or goals, produces the principle policies and plans for
achieving those goals, and defines the range of business the company is
to pursue, the kind of economic and human organization it is or intends
to be, and the nature of the economic and non-economic contribution
it intends to make to its shareholders, employees, customers, and
communities.
Strategic planning is nonlinear and continuous.
It is a dynamic process.
The future is not predictable and planning
for more than 10 years becomes difficult. For
example, the nuclear power industry in Japan
could have not predicted the 2011 Tohoku
earthquake and tsunami.
There are typical shocks in the competitive
environment that trigger a change in strategy
such as changing market conditions, new
technology trends, emerging markets and so on.
CONCEPTS OF STRATEGY
Emergent
Strategy
•
•
•
•
Quickly redirecting
strategy to
accommodate
change.
Reactive process
Series of actions to
react to changes in
competitor actions
or new legislation
Proactive response
Intended
Strategy
• Formulated at
the beginning
of the process
Realized
Strategy
• The strategy
that actually
takes place
WHY DEVELOP A STRATEGY IF THE ORGANISATION MUST
CONTINUALLY CHANGE IT TO ACCOMMODATE UNFORESEEN
CHANGES?
A good strategy realizes the
complexity of reality. In order to be
effective, strategic management
needs to:
• Anticipate future problems
• Provide an alignment with
external contingencies
• Recognize multiple stakeholders
• Be concerned with measurable
performance
STRATEGIC TYPES
Corporate
Strategies
Growth
Strategies
Restructuring
Strategies
•
•
•
Turnaround
Divestiture
Liquidation
•
Incremental
•
International
•
Mergers &
Acquisitions
•
Bankruptcy
Business
Strategies
Stability
Strategies
•
Maintain the
•
business
•
status quo
•
Remain
constant
•
Focus is on one line of
Concerned with
competitive position
•
Answers the question of
“Pause and
“How we should
proceed with
compete”
precaution”
THE STRATEGIC PLANNING PROCESS
1. Establish the mission, vision, and values
2. Develop objectives
3. Analyse the external environment
4. Identify the competitive advantage
5. Determine competitive position
6. Implement the strategy
7. Evaluate performance
1. ESTABLISH THE MISSION, VISION, AND VALUES
Mission statement – States the purpose or reasons an organisation exists.
Vision Statement – Defines the organisation’s long-term goals.
Values – The basic beliefs that govern individual and group behaviour in an
organisation.
By identifying and understanding how values, mission, and vision interact with
one another, an organization can plan a well-designed and successful
strategic plan leading to competitive advantage.
2. DEVELOP OBJECTIVES
• Objectives are basic tools that underlie all planning and strategic activities.
• They serve as the basis for creating policy and evaluating performance.
• In general, objectives are more specific and easier to measure than goals
• Examples of business objectives include minimizing expenses, expanding
internationally, or making a profit.
• Goals can be classified into hard or soft goals
• Hard refers to numbers that set benchmarks for comparison
• Soft refers to targets on a social level like Corporate Social Responsibility.
These goals may not always be quantifiable
3. ANALYSE THE EXTERNAL ENVIRONMENT
• Environmental analysis is a strategic tool.
• It is a process to identify all the external and internal elements which can
affect the organisation’s performance.
• The analysis entails assessing the level of threat or opportunity the factors
might present. These evaluations are later translated into the decision-
making process.
• The analysis helps align strategies with the firm’s environment
4. IDENTIFY THE COMPETITIVE ADVANTAGE
Definition of Competitive Advantage
Competitive advantage is the characteristics of a firm that enable it to
generate more value for customer at a lower cost thereby earner higher rates
of profit than its competitors.
Competitive advantage is derived from resources that allow the organisation
to perform better than competitors, these resources fall into 3 categories:
• Tangible (firm substance),
• Intangible (human capital/copyright),
• Capabilities (KSAs)
In order for these resources and capabilities to provide a sustained
competitive advantage there needs to be 4 criterions to be fulfilled:
• Valuable to firms strategy
• Rarity
• Inimitable
• Organised by firm
4. IDENTIFY COMPETITIVE ADVANTAGE
Core competencies
• Resources and capabilities that serve as the firm’s competitive advantage
• Distinguishes a company competitively and reflects its personality
• Can be leveraged which means that HR managers should be particularly
aware of how to contribute to the creation of core competencies
Dynamic capabilities
• Ability to adapt and renew competencies in accordance with a changing
business environment
SWOT Analysis
S- strength (attribute that enhances competitiveness)
W – weakness (disadvantage)
O – opportunity (beneficial external conditions)
T – threat(harmful external condition)
Once a company identifies what makes it different from other companies,
they can go on to identify the competitive position it wants to achieve.
5. DETERMINE THE COMPETITIVE POSITION
• It is the duty of senior management to determine who the customers are,
where they are located, and what product/service characteristics those
customers value.
• There are 5 generic competitive strategies in which an organization can
compete:
Lower-cost provider strategy
Broad differentiation strategy
Best-cost provider strategy
Focused or market niche strategy based on lower cost
Focused or market niche strategy based on differentiation
6. IMPLEMENT THE STRATEGY
• Process of establishing the programs, budgets, and procedures for
facilitating the achievement of the strategic goals
• Strategy implementation – strategy put into action aka operational
planning
• Program-outlines the steps or activities necessary to accomplish the goal
• Budget – detailed costs of each program, and defines how the
organisation is going to allocate its financial resources
• Procedures – list of steps required to get the job done
7. EVALUATE THE PERFORMANCE
• The successful implementation of a strategy is judged by the ability to
meet financial targets, profit margins, benchmarked ratios of efficiency.
•
Companies are using certain indicators to measure the traits of success
such as a balanced score card or surveys.
• It is through evaluation that a company can determine whether they are
successful or not and gain the necessary feedback for improvement
BENEFITS OF STRATEGY FORMULATION
• Clarity- focused and guided decision making about resource allocation
• Coordination- everyone works toward the same goals
• Efficiency- daily decision making
• Incentives- employees understand the behaviours and performances that
will be rewarded
• Adjustment to change- major change underway-understanding current
strategy important
• Career development- helps potential employees decide if they want to
work for the company.
FAILING TO SEE THE BENEFITS OF
STRATEGIC PLANNING
Organisations that fail to see the benefits of strategic planning succumb to
these errors:
• Relegating the process to official planners, and not involving executives and
managers (even employees), resulting in no buy-in(not working
synonymously)
• Failing to use the plan as a guide to making decisions and evaluating
performance
• Failing to align incentives and other HR policies to the achievement of the
strategy
CONCLUSION
Strategic management is the management of an organisation’s resources to
achieve its goals and objectives. Strategic management involves setting
objectives, analysing the competitive environment, analysing the internal
organisation, evaluating strategies and ensuring that management rolls out
the strategies across the organisation. At it’s heart, strategic management
involves identifying how the organisation stacks up to its competitors and
recognising opportunities and threats facing the organisation, whether they
come from within the organisation or from competitors.