Strategic management involves three key activities: 1) understanding how firms create competitive advantage, 2) analyzing strategic situations to formulate strategic plans, and 3) implementing strategies and organizing the firm for strategic success. The document discusses definitions of strategy, the importance of defining the business and establishing goals and mission, sources of competitive advantage, and levels of strategy including corporate, business, and functional strategies. Effective strategic decision-making requires addressing factors like time constraints, limited information, and group biases.

1. Strategic Management/
Business Policy
Power Point Set #1:
Definitions of Strategy

2. The Wisdom of Choice:
“To try and fail is at least to learn; to fail to try is to suffer
the inestimable loss of what might have been.”
– Chester Barnard, The Functions of the Executive
2

3. What Is Strategic Management About?
Understanding how firms create, capture, and sustain
competitive advantage.
Analyzing strategic business situations and formulating
strategic plans.
Implementing strategy and organizing the firm for
strategic success.
3

4. assess Strategy formulation Strategy implementation
environmental
factors
Conduct
Identify Develop
competitive
current specific
analysis: carry out maintain
mission strategies:
•strengths strategic strategic
and •corporate
•weakness plans control
strategic •business
•opportunity
goals •functional
•threats
assess
organisational
factors
6
4

5. What Is Strategic Management About?
Sustainable competitive advantage occurs
when a firm implements a value-creating
strategy of which other companies are
unable to duplicate the benefits or find it
too costly to imitate.
An important basis for sustainable
competitive advantage is the development
of resources and capabilities.
Core competencies are resources and
capabilities (often related to functional-level
skills) that serve as a source of competitive 5

6. Key Characteristics Of Strategic Decisions
Important;
Typically, under some Uncertainty;
Involves Alternatives, Consequences, and Choice;
Significant Commitment of Resources; and
Not Easily Reversible.
6

7. Strategy Making :: Design or Process?
Strategy Making Design or Process?
Strategy as Design Strategy as Process
Planning and Many decision makers
rational choice responding to multitude of
external and internal forces
INTENDED EMERGENT
STRATEGY STRATEGY
REALIZED STRATEGY
Mintzberg’s Critique of Formal Strategic Planning:
Mintzberg’s Critique of Formal Strategic Planning:
•The fallacy of prediction ––the future is unknown
•The fallacy of prediction the future is unknown
•The fallacy of detachment -- impossible to divorce formulation from
•The fallacy of detachment -- impossible to divorce formulation from
implementation
implementation
•The fallacy of formalization --inhibits flexibility, spontaneity,
•The fallacy of formalization --inhibits flexibility, spontaneity,
intuition and learning.
intuition and learning.
7

8. The Evolution of Strategic Management
The Evolution of Strategic Management
1950s 1960s Early-mid Late1970s Late 1980s Late 1990s
1970s early 1980s early 1990s early 2000s
DOMINANT Budgetary Corporate Corporate Analysis of Quest for Strategic
THEME planning & planning strategy industry & competitive innovation
control competition advantage The “New
Economy”
MAIN Financial control Planning growth Diversifica- Positioning Competitive Innovation &
ISSUES ion advantage knowledge
Budgeting Forecasting & Portfolio Analysis of Resource Dynamic
CONCEPTS project appraisal investment planning. industry & analysis. sources of
& planning Synergy competition Case advantage
TECHNIQUES market competences Knowledge
share management
cooperation
Emphasis on Rise of Diversifi- Industry/market Restructuring Virtual orga-
IMPLEMENT- financial corporate planning cation. selectivity. BPR. nization.
ATION management departments Quest for Active asset Refocusing Alliances
& formal global management Outsourcing Quest for
planning market share critical mass
8

9. The Basic Framework
The Basic Framework
Strategy: the Link between the
Strategy: the Link between the
Firm and its Environment
Firm and its Environment
THE FIRM
THE
Goals &
Values INDUSTRY
STRATEGY
ENVIRONMENT
Resources & STRATEGY
Capabilities Competitors
Customers
Structure & Suppliers
Systems
9

10. How Does It Compare to Other
Business Classes?
Macro level
Task
environm ent
environm ent
Finance
Mktg. Strategy Oper
.
Acctg. H.R.
The
f irm
10

11. Task Environment
Customers and Markets:
Distributors
End users
Competitors:
Competitors for Markets
Competitors for Resources
Suppliers:
Suppliers of physical resources
Suppliers of financial resources
Suppliers of human resources
11

12. Task Environment
Regulatory Groups:
Government
Unions
Special Interest Groups
Technology:
Rate of Development
Substitutes
Stage of Product or Industry
12

13. The Role of Strategy In Business is to Generate and Sustain
Value via the Linkages Between Position, Resources, and
Organization
Positioning
Resources
Organization
& Capabilities
13

14. Positioning
Scope of the Firm:
Geographic Scope
Product-market Scope: Choice of businesses
(corporate portfolio
analysis)
Product Market Positioning within
a business
Vertical integration 14

15. Resources
Tangible Resources
e.g., physical capital
Organizational Capabilities
e.g., routines and standard operating procedures
Intangible Resources
e.g., trademarks, “know-how”
15

16. Organization
Structure
Formal Definition of authority
Conflict Resolution
Systems
Rules, Routines, Evaluation and rewards
Processes
Informal communication, networks, recruitment
16

17. Definitions of Strategy
The term “strategy” is intended to focus on the interdependence
of the adversaries’ decisions and on their expectations about each
other’s behavior” (Thomas Schelling The Strategy of Conflict)
“Strategy can be defined as the determination of the basic long-
term goals and objectives of an enterprise, and the adoption of
courses of action and the allocation of resources necessary for
carrying out those goals.”
(Alfred D. Chandler Strategy and Structure)
Strategy is: “The pattern or plan that integrates an organization’s
major goals, policies, and action sequences into a cohesive whole.
A well formulated strategy helps to marshal and allocate an
organization’s resources into a unique and viable posture based
on its relative internal competencies and shortcomings, anticipated
changes in the environment , and contingent moves by intelligent
opponents.” (James Brian Quinn, Logical Incrementalism)
17

18. Abell’s Framework for Defining the Business
Who is being What is being
satisfied? satisfied?
Customer Customer
Groups Definition Needs
of Business
How are
customer needs
satisfied?
Distinctive
Competencies
18

19. Defining the Business: The Starting Point of Strategy
Example: Fall of the Railroads
“They let others take customers away from them because
they assumed themselves to be in the railroad business rather
than in the transportation business. The reason they defined
their industry wrong was because they were railroad
oriented instead of transport oriented; they were product
oriented instead of customer oriented.”
Theodore Levitt “Market Myopia”
19

20. Mission Statement and Goals
It is the function of the top management team to provide
the firm’s purpose or “strategic intent.”
Chester Barnard The Functions of the Executive
Alfred Sloan My Years with General Motors
Komatsu ---> “Encircle Caterpillar”
Canon ---> “Beat Xerox”
Kodak ---> “Be the leader in the imaging sector”
Coca Cola ---> “To put a Coke within ‘arms reach’ of
every consumer in the world.” 20

21. Fundamental question of the choice of Goals:
Planning for what purpose(s)?
Profitability (net profits)
Efficiency (low costs)
Market Share
Growth (e.g., increase in total
assets, sales, etc)
Shareholder Wealth (dividends
plus stock price
appreciation)
Utilization of Resources
(e.g., ROE, ROI)
Reputation
Contribution to Stakeholders
(e.g., employees, society)
Survival (avoid bankruptcy) 21

22. The Manager’s role in balancing expectations
Business Roundtable:
“Balancing the shareholder’s expectations of maximum return
against other priorities is one of the fundamental problems
confronting corporate management.”
Understanding corporate strategy means understanding the
competing value claims of multiple stakeholders.
Stakeholders are the individuals and groups who can affect, and are
affected by, the strategic outcomes achieved and who have
enforceable claims on a firm’s performance.
22

23. Stakeholders and the Enterprise
Contributions
Inducements
Contributions Inducements
FIGURE 2.1
Copyright © 2001 Houghton Mifflin Company. All rights reserved. 23 2-2

24. Key Drivers of Value Creation and Sustainable
Competitive Advantage:
Generating economic value can be accomplished
through:
REVENUE drivers
COST drivers
RISK drivers
24

25. Value and Cost Drivers
Figure 2.5
1-25

26. Sources of Superior Profitability
INDUSTRY
ATTRACTIVENESS
Which CORPORATE
RATE OF PROFIT businesses STRATEGY
ABOVE THE should we be
COMPETITIVE in?
LEVEL
How do we
make
money? COMPETITIVE
ADVANTAGE
How should BUSINESS
we compete? STRATEGY
26

27. The Levels of Strategy
C o r p o r a te
Corporate - General Electric H e a d q u a r te r s
D iv is io n A D iv is io n B D iv is io n C
Business - Home Appliances
R&D R&D R&D
HR HR HR
Functional - e.g., Production F in a n c e F in a n c e F in a n c e
P r o d u c t io n P r o d u c t io n P r o d u c t io n
M k t g / S a le s M k t g / S a le s M k t g / S a le s
27

28. Corporate Strategy
At the corporate level, value creation can occur if the
individual parts of a firm are integrated into a
coherent whole.
Corporate strategy is the way a company creates
value through the configuration and coordination of
its multi-market activities.
28

29. Managers as
Managers as
An optimal decision
An optimal decision
is possible
decision makers
decision makers
is possible
Assumptions of the
Assumptions of the
All relevant information
Rational Model
Rational Model
All relevant information
is available
is available
All relevant information is
All relevant information is
Rational
Rational
understandable
understandable decision
decision
All alternatives are known
All alternatives are known
making
making
All possible outcomes known
All possible outcomes known
9 BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E © McGraw-Hill Australia 2001
29

30. Managers as
Managers as
Time constraints
Time constraints
decision makers
decision makers
Satisficing
Satisficing
Limited ability to
Limited ability to
understand all factors
understand all factors
Inadequate base
Inadequate base ‘Satisficing’
‘Satisficing’
of information
of information
decision
decision
Limited memory of
Limited memory of making
making
decision-makers
decision-makers
Poor perception of factors
Poor perception of factors
to be considered
to be considered
in decision process
in decision process
10 BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E © McGraw-Hill Australia 2001
30

31. 1-40
Improving Strategic
Decision-Making
Illusion
of
Control
Prior Reasoning
Hypothesis by
Bias Analogy
Escalating Representa-
Commitment tiveness
31 Copyright

32. Symptoms of Groupthink and How to
Prevent It
• Symptoms
Groupthink • Illusion of invulnerability
• Belief in the inherent morality of the group
• Stereotyped views of members of
opposing groups
• Application of pressure to members who
express doubts about the group’s shared
allusions or question the validity of
arguments proposed
• Practice of self-censorship
• Appointment of mindguards
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. 14-25
32

33. Using Conflict-Inducing Decision-Making
Techniques in Case Analysis
Devil’s Dialectical
Advocacy Inquiry
Groupthink
Use conflict-inducing decision-making techniques to
help prevent groupthink and lead to better decisions.
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. 14-24
33

34. Two Conflict-Inducing Decision-Making
Processes
Adapted from Exhibit 14.4 Two Conflict-Inducing Decision-Making Processes
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. 14-29
34

35. Our Learning Goals:
Pushing Down Through Bloom’s Taxonomy
1. Knowledge: remember
remember 4. Analysis: break material
break material
material; know terms, facts,
material; know terms, facts, into components & understand
into components & understand
procedures, basic concepts structure; recognize logical
structure; recognize logical
procedures, basic concepts
fallacies, distinguish fact and
fallacies, distinguish fact and
2. Comprehension: inference, evaluate relevancy of
inference, evaluate relevancy of
data
grasp meaning; understand data
grasp meaning; understand
facts, interpret charts,
facts, interpret charts, 5. Synthesis: integrate parts
integrate parts
translate verbal to math
translate verbal to math to make a new whole, integrate
to make a new whole, integrate
estimate consequences
estimate consequences learning to solve a problem
learning to solve a problem
3. Application: use
use 6. Evaluations: judge logical
judge logical
material in new situations;
material in new situations; consistency, judge whether
consistency, judge whether
apply concepts to real conclusions are supported by
conclusions are supported by
apply concepts to real
facts
facts
situations, follow a procedure
situations, follow a procedure
35

36. Summary “Takeaways”
Providing PURPOSE is an important function for
the executive.
One important purpose is to CREATE VALUE.
Value creation can lead to SUSTAINABLE
COMPETITIVE ADVANTAGE.
36