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.