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Basic Concept of Strategy & Strategic Management


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“If you don’t know where you are going, any road will take you there.”~The Qur’an

“Management’s job is not to see the company as it is . . . but as it can become.”~John W. Teets

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Basic Concept of Strategy & Strategic Management

  1. 1. Basic Concept of Strategy & Strategic Management Clinton Corporate Strategy 2m30Djadja Achmad /
  2. 2. “If you don’t know where you are going, any road will take you there.” The Qur’an2/23/2011 IM Telkom - Basic Concept of 2 Strategy
  3. 3. “Management’s job is not to see the company as it is . . . but as it can become.” John W. Teets2/23/2011 IM Telkom - Basic Concept of 3 Strategy
  4. 4. “Without a strategy the organization is like a ship without a rudder.” Joel Ross and Michael Kami2/23/2011 IM Telkom - Basic Concept of 4 Strategy
  5. 5. Thinking Strategically: The Three Big Strategic Questions1. Where are we now?2. Where do we want to go? • Business(es) to be in and market positions to stake out • Buyer needs and groups to serve • Outcomes to achieve3. How will we get there? • A company’s answer to “how will we get there?” is its strategy 2/23/2011 IM Telkom - Basic Concept of Strategy 5
  6. 6. What Is Strategy?• Consists of the combination of competitive moves and business approaches used by managers to run the company• Management’s “game plan” to • Attract and please customers • Stake out a market position • Compete successfully • Grow the business • Achieve targeted objectives 2/23/2011 IM Telkom - Basic Concept of Strategy 6
  7. 7. The Hows That Define a Firms Strategy• How to please customers• How to respond to changing Strategy market conditions is HOW to . . .• How to outcompete rivals• How to grow the business• How to manage each functional piece of the business and develop needed organizational capabilities• How to achieve strategic and financial objectives 2/23/2011 IM Telkom - Basic Concept of Strategy 7
  8. 8. What Are a Company’s Strategic Choices? Strategic choices are based on . . .• Trial-and-error organizational learning about • What has worked and • What has not worked• Management’s appetite for taking risks• Managerial analysis and strategic thinking about how best to proceed, given prevailing circumstances 2/23/2011 IM Telkom - Basic Concept of Strategy 8
  9. 9. Identifying a Company’s Strategy2/23/2011 IM Telkom - Basic Concept of Strategy 9
  10. 10. Striving for Competitive Advantage• To achieve sustainable competitive advantage, a company’s strategy usually must be aimed at either • Providing a distinctive product or service or • Developing competitive capabilities rivals can not match• Achieving a sustainable competitive advantage greatly enhances a company’s prospects for • Winning in the marketplace and •What separates a powerful profits from an ordinary strategy Realizing above-average strategy is management’s ability to forge a series of moves, both in the marketplace and internally, that produces sustainable competitive advantage! 2/23/2011 IM Telkom - Basic Concept of Strategy 10
  11. 11. Strategic Approaches to Building Competitive Advantage• Strive to be the industry’s low-cost provider• Outcompete rivals on a key differentiating feature• Focus on a narrow market niche, doing a better job than rivals of serving the unique needs of niche buyers• Develop expertise, resource strengths, and capabilities not easily imitated by rivals 2/23/2011 IM Telkom - Basic Concept of Strategy 11
  12. 12. Examples of Strategies Based on Distinctive Capabilities• Sophisticated distribution systems – Wal-Mart• Product innovation capabilities – 3M Corporation• Complex technological process – Michelin• Defect-free manufacturing – Toyota and Honda• Specialized marketing and merchandising know-how – Coca-Cola• Global sales and distribution capability – Black & Decker• Superior e-commerce capabilities – Dell Computer• Personalized customer service – Ritz Carlton hotels 2/23/2011 IM Telkom - Basic Concept of Strategy 12
  13. 13. A Company’s Strategy Is Partly Proactive and Partly Reactive2/23/2011 IM Telkom - Basic Concept of Strategy 13
  14. 14. Why Do Strategies Evolve?• A company’s strategy is a work in progress• Changes may be necessary to react to • Fresh moves of competitors • Evolving customer preferences • Technological breakthroughs • Shifting market conditions • Crisis situations 2/23/2011 IM Telkom - Basic Concept of Strategy 14
  15. 15. What Is a Business Model?• A business model addresses “How do we make money in this business?” • Is the strategy capable of delivering good bottom-line results?• Do the revenue-cost-profit economics of the strategy make good business sense? • Look at revenue streams the strategy is expected to produce • Look at associated cost structure and potential profit margins • Do resulting earnings streams and ROI indicate the strategy makes sense and the company has a viable business model for making money? 2/23/2011 IM Telkom - Basic Concept of Strategy 15
  16. 16. Relationship Between Strategy and Business ModelStrategy - Deals with a Business Model -company’s competitive Concerns whetherinitiatives and business revenues and costsapproaches flowing from the strategy demonstrate the business can be amply profitable and viable 2/23/2011 IM Telkom - Basic Concept of 16 Strategy
  17. 17. Microsoft’sBusiness ModelEmploy a cadre of highly skilled programmers todevelop proprietary code; keep source code hidden fromusersSell resulting OS and software packages to PC makersand users at relatively attractive prices and achievelarge unit salesMost costs in developing software are fixed; variablecosts are small - once breakeven volume is reached,revenues from additional sales are almost pure profitProvide technical support to users at no cost2/23/2011 IM Telkom - Basic Concept of Strategy 17
  18. 18. Redhat Linux’s Business ModelRely on collaborative efforts of volunteer programmers to create thesoftwareAdd value to free, downloadable version of Linux by offering users RedHat Linux systems containing upgraded and tested featuresCharge a modest fee to those preferring to subscribe to Red Hat LinuxversionRelease updated versions of Red Hat Linux every 4-6 months to smallusers and every 12-18 months to corporate usersMake source code open and available to all usersMake money by providing fees-based training, consulting, support,engineering, and content management services 2/23/2011 IM Telkom - Basic Concept of Strategy 18
  19. 19. Tests of a Winning Strategy• GOODNESS OF FIT TEST • How well does strategy fit the firm’s situation?• COMPETITIVE ADVANTAGE TEST • Does strategy lead to sustainable competitive advantage?• PERFORMANCE TEST • Does strategy boost firm performance? 2/23/2011 IM Telkom - Basic Concept of Strategy 19
  20. 20. Other Criteria for Judging the Merit of a Strategy• Internal consistency and unity among all pieces of the strategy• Degree of risk the strategy poses as compared to alternative strategies• Degree to which the strategy is flexible and adaptable to changing circumstances While these criteria are relevant, they seldom override the importance of the three tests of a winning strategy! 2/23/2011 IM Telkom - Basic Concept of Strategy 20
  21. 21. Why Is Strategy Important?• A compelling need exists for managers to proactively shape how a firm’s business will be conducted• A strategy-focused firm is more likely to be a strong bottom-line performer than one that views strategy as secondary 2/23/2011 IM Telkom - Basic Concept of Strategy 21
  22. 22. Good Strategy + Good Strategy Execution = Good Management• Crafting and executing strategy are core management functions• Among all things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team • Charts the company’s direction, • Develops competitively effective strategic moves and business approaches, and • Pursues what needs to be done internally to produce good day- in/day-out strategy execution Excellent execution of an excellent strategy is the best test of managerial excellence -- and the most reliable recipe for winning in the marketplace! 2/23/2011 IM Telkom - Basic Concept of Strategy 22
  23. 23. 5 ways of looking@Strategy• Plan• Pattern• Position• Perspective• Ploy 2/23/2011 IM Telkom - Basic Concept of Strategy 23
  24. 24. The Strategy - Making, Strategy- Executing Process2/23/2011 IM Telkom - Basic Concept of Strategy 24
  25. 25. A Company’s Strategy- Making Hierarchy2/23/2011 IM Telkom - Basic Concept of Strategy 25
  26. 26. Levels of Strategy-Making in a Diversified Company Corporate-Level Corporate Managers Strategy Two-Way Influence Business-Level Business Managers Strategies Two-Way Influence Functional Managers Functional Strategies Two-Way InfluenceOperatingManagers Operating Strategies 2/23/2011 IM Telkom - Basic Concept of Strategy 26
  27. 27. Levels of Strategy-Making in a Single-Business Company Business-Level Business Managers Strategy Two-Way Influence Functional Managers Functional Strategies Two-Way InfluenceOperatingManagers Operating Strategies2/23/2011 IM Telkom - Basic Concept of Strategy 27
  28. 28. Tasks of Corporate Strategy• Moves to achieve diversification• Actions to boost performance of individual businesses• Capturing valuable cross-business synergies to provide 1 + 1 > 2 effects!• Establishing investment priorities and steering corporate resources into the most attractive businesses 2/23/2011 IM Telkom - Basic Concept of Strategy 28
  29. 29. Tasks of Business Strategy• Initiating approaches to produce successful performance in a specific business• Crafting competitive moves to build sustainable competitive advantage• Developing competitively valuable competencies and capabilities• Uniting strategic activities of functional areas• Gaining approval of business strategies by corporate-level officers and directors 2/23/2011 IM Telkom - Basic Concept of Strategy 29
  30. 30. Tasks of Functional Strategies• Game plan for a strategically-relevant function, activity, or business process• Detail how key activities will be managed• Provide support for business strategy• Specify how functional objectives are to be achieved 2/23/2011 IM Telkom - Basic Concept of Strategy 30
  31. 31. Tasks of Operating Strategies• Concern narrower strategies for managing grassroots activities and strategically-relevant operating units• Add detail to business and functional strategies• Delegation of responsibility to frontline managers 2/23/2011 IM Telkom - Basic Concept of Strategy 31
  32. 32. What Is a Strategic Plan? Its strategic vision and business mission ACompany’s Strategic Its strategic and Plan financial objectives Consists of Its strategy2/23/2011 IM Telkom - Basic Concept of Strategy 32
  33. 33. Developing a Strategic Vision Phase 1 of the Strategy-Making Process Strategy-• Involves thinking strategically about • Future direction of company • Changes in company’s product/market/customer technology to improve • Current market position • Future prospects A strategic vision describes the route a company intends to take in developing and strengthening its business. It lays out the company’s strategic course in preparing for the future. 2/23/2011 IM Telkom - Basic Concept of Strategy 33
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  35. 35. Key Elements of a Strategic Vision• Delineates management’s aspirations for the business• Provides a panoramic view of “where we are going”• Charts a strategic path• Is distinctive and specific to a particular organization • Avoids use of generic language that is dull and boring and that could apply to most any company• Captures the emotions of employees and steers them in a common direction• Is challenging and a bit beyond a company’s immediate reach 2/23/2011 IM Telkom - Basic Concept of Strategy 35
  36. 36. Role of a Strategic Vision• A well-conceived and well-communicated vision functions as a valuable managerial tool to • Give the organization a sense of direction, mold organizational identity, and create a committed enterprise • Inform company personnel and other stakeholders what management wants its business to look like and “where we are going” • Spur company personnel to action • Provide managers with a reference point to • Make strategic decisions • Translate the vision into hard-edged objectives and strategies • Prepare the company for the future A strategic vision exists only as words and has no organizational impact unless and until it wins the commitment of company personnel and energizes them to act in ways that move the company along the intended strategic path! 2/23/2011 IM Telkom - Basic Concept of Strategy 36
  37. 37. 2/23/2011 IM Telkom - Basic Concept of 37 Strategy
  38. 38. 2/23/2011 IM Telkom - Basic Concept of 38 Strategy
  39. 39. Examples of Strategic Visions Red HatTo extend our position as the most trusted Linux and open source provider to the enterprise. We intend to grow the market for Linux through a complete range of enterprise Red Hat Linux software, a powerful Internet management platform, and associated support and services. Wells Fargo We want to satisfy all of our customers’ financial needs, help them success financially, be the premier provider of financial services in every one of our markets, and be known as one of America’s great companies. 2/23/2011 IM Telkom - Basic Concept of Strategy 39
  40. 40. Examples of Strategic Visions Hilton Hotels Corporation Our vision is to be the first choice of the world’s travelers. Hiltonintends to build on the rich heritage and strength of our brands by:Consistently delighting our customersInvesting in our team membersDelivering innovative products and servicesContinuously improving performanceIncreasing shareholder valueCreating a culture of prideStrengthening the loyalty of our constituents.2/23/2011 IM Telkom - Basic Concept of Strategy 40
  41. 41. Examples of Strategic Visions Dental Products Division of 3M Corporation Become THE supplier of choice to the global dental professional markets, providing world-class quality and innovative products. [All employees of the division wearbadges bearing these words, and when- ever a new product orbusiness procedure is being considered, management asks “Is this representative of THE leading dental company?”] Caterpillar Be the global leader in customer value. 2/23/2011 IM Telkom - Basic Concept of Strategy 41
  42. 42. Examples of Strategic Visions H. J. Heinz Company Be the world’s premier food company, offering nutritious, superior tasting foods to people everywhere. Being the premier food company does not mean being the biggest but it does mean being the best in terms of consumer value, customer service, employee talent, and consistent and predictable growth. eBayProvide a global trading platform where practically anyone can trade practically anything. 2/23/2011 IM Telkom - Basic Concept of Strategy 42
  43. 43. Strategic Vision vs. Mission• A strategic vision • The mission statement of a concerns a firm’s future firm focuses on its present business path - “where business purpose - “who we we are going” are and what we do” • Markets to be pursued • Current product and • Future product/market/ service offerings customer/technology • Customer needs being focus served • Kind of company • Technological management is and business trying to create capabilities 2/23/2011 IM Telkom - Basic Concept of 43 Strategy
  44. 44. Characteristics of a Mission Statement• Identifies the boundaries of the current business and highlights • Present products and services • Types of customers served • Geographic coverage• Conveys • Who we are, • What we do, and • Why we are here A well-conceived mission statement distinguishes a company’s business makeup from that of other profit-seeking enterprises in language specific enough to give the company its own identify! 2/23/2011 IM Telkom - Basic Concept of Strategy 44
  45. 45. Key Elements of a Mission Statement• Three factors need to be identified for completeness • Customer needs being met What is being satisfied • Customer groups or markets being served Who is being satisfied • What the organization does (in terms of business approaches, technologies used, and activities performed) to satisfy the target needs of the target customer groups A company’s mission is not to make a profit! Its true mission is its How customer needs are satisfied answer to “What will we do to make a profit?” Making is profit is an objective or intended outcome! 2/23/2011 IM Telkom - Basic Concept of Strategy 45
  46. 46. Trader Joe’s Mission Statement (a unique grocery store chain) To give our customers the best food and beverage valuesthat they can find anywhere and to provide them with the information required for informed buying decisions. We provide these with a dedication to the highest quality of customer satisfaction delivered with a sense of warmth, friendliness, fun, individual pride, and company spirit.2/23/2011 IM Telkom - Basic Concept of Strategy 46
  47. 47. Communicating the Strategic Vision• Winning support for the vision involves • Putting “where we are going and why” in writing • Distributing the statement organization-wide • Having executives explain vision to the workforce• An engaging, inspirational vision • Challenges and motivates workforce • Articulates a compelling case for where company is headed • Evokes positive support and excitement • Arouses a committed organizational effort to move in a common direction 2/23/2011 IM Telkom - Basic Concept of Strategy 47
  48. 48. Examples: Vision SlogansLevi Strauss & Company“We will clothe the world by marketing the mostappealing and widely worn casual clothing in the world.” Nike “To bring innovation and inspiration to every athlete in the world. Mayo Clinic“The best care to every patient every day.” 2/23/2011 IM Telkom - Basic Concept of Strategy 48
  49. 49. Examples: Vision Slogans Scotland Yard“To make London the safest major city in the world.” Greenpeace “To halt environmental abuse and promote environmental solutions.” Charles Schwab “To provide customers with the most useful and ethical financial services in the world.” 2/23/2011 IM Telkom - Basic Concept of Strategy 49
  50. 50. Overcoming Resistance to a New Strategic Vision• Mobilizing support for a new vision entails • Reiterating basis for the new direction • Addressing employee concerns head-on • Calming fears • Lifting spirits • Providing updates and progress reports as events unfold 2/23/2011 IM Telkom - Basic Concept of Strategy 50
  51. 51. Recognizing Strategic Inflection Points• Sometimes an order-of-magnitude change occurs in a company’s environment that • Dramatically alters its future prospects • Mandates radical revision of its strategic course• Critical decisions have to be made about where to go from here • A major new directional path may have to be taken • A major new strategy may be needed• Responding quickly to unfolding changes in the marketplace lessons a company’s chances of • Becoming trapped in a stagnant business or • Letting attractive new growth opportunities slip away 2/23/2011 IM Telkom - Basic Concept of Strategy 51
  52. 52. Intel’s “Strategic Inflection Points”• Prior to mid-1980s • Focus on memory chips• Starting in mid-1980s • Abandon memory chip business (due to lower-cost Japanese companies taking over the market) and • Become preeminent supplier of microprocessors to PC industry • Make PC central appliance in workplace and home • Be undisputed leader in driving PC technology forward• 1998 • Shift focus from PC technology to becoming the preeminent building block supplier to Internet economy 2/23/2011 IM Telkom - Basic Concept of Strategy 52
  53. 53. Linking the Vision with Company Values• Companies often develop a statement of values to guide a company’s pursuit of its vision and strategy and paint the white lines for how the company’s business is to be conducted • Company values statements typically contain four to eight beliefs, traits, and behaviors relating to such things as • Integrity, doing the right thing, product quality, customer satisfaction, treatment of people, teamwork, operating excellence, giving back to the community• But values statements remain a bunch of nice words until the espoused beliefs, traits, and behaviors • Are incorporated into company’s operations and work practices • Are used as the benchmark for job appraisal, promotions, and rewards If company personnel are not held accountable for displaying company values in doing their jobs, then the company values statement is an empty box! 2/23/2011 IM Telkom - Basic Concept of Strategy 53
  54. 54. Payoffs of a Clear Strategic Vision• Crystallizes an organization’s long-term direction• Reduces risk of rudderless decision-making• Creates a committed enterprise where organizational members enthusiastically pursue efforts to make the vision a reality• Provides a beacon to keep strategy-related actions of all managers on common path• Helps an organization prepare for the future 2/23/2011 IM Telkom - Basic Concept of Strategy 54
  55. 55. HBR-The References Secret Origins of Corporate Strategy-10m• Arthur A. Thompson, Jr. and A.J. Strickland III, Crafting and Executing Strategies – The Quest for Competitive Advantage: Concepts and Cases, 17th Edition, 2010, McGraw-Hill Irwin. (required)• Henry Mintzberg, Joseph Lampel and Bruce Ahlstrand, Strategy Safari, 1998, The Free Press• Kaihan Krippendorff, The Art of Advantage, 2003, TEXERE• Robert S. Kaplan and David P. Norton, Translating Strategy into Action: The Balanced Scorecard, 1996, Harvard Business School Press 2/23/2011 IM Telkom - Basic Concept of Strategy 55