SM Lecture One : Introducing Strategy

Strategic Management BUSM 3200

These Lecture Slides summarize the key points covered in the respective chapters in your
recommended text; these slides do NOT substitute, at all, the required reading of the assigned
chapter from the text. These slides also may contain additional supplementary material extracted
from other texts and sources outside your text book.

BUSM 3200- Strategic Management (Jan 2013) GDS 1-1

The Required Text:

The text is
COMPULSORY

• To do the assignment
• Case studies as shown
in the lecture schedule
needs to be read from
the text
• Examination topics
and content taken
from this book

• PLEASE PURCHASE
ASAP!


Learning outcomes for Chapter One:
• Summarise the strategy of an organisation in a ‘strategy
statement’.
• Identify key issues for an organisation’s strategy according
to the Exploring Strategy model.
• Distinguish between corporate, business and operational
strategies.
• Understand how different people contribute to strategy at
work.
• Appreciate the contributions of different academic
disciplines and theoretical lenses to practical strategy
analysis.


Definitions of strategy (1)
 ‘..the determination of the long-run goals and
objectives of an enterprise and the adoption of courses of
action and the allocation of resource necessary for carrying
out these goals’
Alfred Chandler

 ‘Competitive strategy is about being different. It
means deliberately choosing a different set of
activities to deliver a unique mix of value’
Michael Porter
Sources:
A.D. Chandler, Strategy and Structure: Chapters in the History of American Enterprise, MIT
Press, 1963, p. 13
M.E. Porter, ‘What is strategy?’, Harvard Business Review, 1996, November–December,
p. 60


Definitions of strategy (2)
 ‘..a pattern in a stream of decisions’
Henry Mintzberg

 ‘..the long-term direction of an
organisation’
Exploring Strategy
Sources:
H. Mintzberg, Tracking Strategy: Toward a General Theory, Oxford University Press, 2007,
p. 3


From the text:


Another good interpretation of Strategy:

“If you don’t have a strategy you will be . . .
part of somebody else’s strategy.”
- Alvin Toffler

This definition reminds us of the importance of staying ahead of
the game in SM; if not you will be overtaken and subsumed by
your rivals!


WHAT DO WE MEAN BY STRATEGY ?

♦ What is our present situation?
● Business environment and industry conditions
● Firm’s financial and competitive capabilities
♦ Where do we want to go from here?
● Creating a vision for the firm’s future direction
♦ How are we going to get there?
● Crafting an action plan that will get us there

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 1–8

WHAT IS STRATEGY ABOUT?

♦ Strategy is all about How:
● How to outcompete rivals.
● How to respond to economic and market
conditions and growth opportunities.
● How to manage functional pieces of the
business.
● How to improve the firm’s financial and
market performance.


Strategic decisions

 BUSM 3200- Strategic Management (Jan 2013) GDS 1-10

WHY CRAFTING AND EXECUTING
STRATEGY ARE IMPORTANT TASKS

♦ Strategy provides:
● A prescription for doing business.
● A road map to competitive advantage.
● A game plan for pleasing customers.
● A formula for attaining long-term standout
marketplace performance.

Good Strategy + Good Strategy Execution =
Good Management

WHY DO STRATEGY ?

♦ A firm does strategy:
● To improve its financial performance.
● To strengthen its competitive position.
● To gain a sustainable competitive.
advantage over its market rivals.
♦ A creative, distinctive strategy:
● Can yield above-average profits.
● Makes competition difficult for rivals.


1.1 Identifying a Company’s Strategy—What to Look For


Does strategic planning always lead to
success?
The formal planning model does not consider:
♦ The unpredictability of the real world (turbulence)
♦ The role of lower-level managers- they may not
implement effectively
♦ That success is often unplanned or serendipitous
(element of luck and timing?)
♦ Other reasons?

♦ So there is always an interesting debate as to whether
strategic planning always lead to higher performance


Three horizons for strategy (1)

Horizon 1 :
Extend and defend core business.
Horizon 2 :
Build emerging businesses.
Horizon 3 :
Create viable options.


Three horizons for strategy (2)

Figure 1.2 Three horizons for strategy
Source: M. Baghai, S. Coley and D. While, The Alchemy of Growth, 2000, Texere Publishers: Figure 1.1, p. 5


Stakeholders

Stakeholders are those individuals or groups
that depend on an organisation to fulfil their
own goals and on whom, in turn, the
organisation depends.

Later in the course, we will cover the
implementation issues of SM
Here you will learn that decision making is a
highly politicized process and many
stakeholders will be involved

Levels of strategy (1)
Corporate-Level Strategy is concerned with the
overall purpose and scope of an organisation
and how to add value to business units.
Business-Level Strategy is concerned with the
way a business seeks to compete successfully
in its particular market.
Operational Level Strategy is concerned with
how different parts of the organisation deliver
the strategy in terms of managing resources,
processes and people.


Levels of Strategic Management


Different levels of strategy
 Strategy success depends on the conceptualization at the
top and implementation down the levels
 Each lower level needs to translate strategy into
operational plans
 Shows the importance of integration and coordination.
 Example how would a decision to move in a strategic
direction affect business functions such as marketing, HR,
finance, operations, etc
 Also important to note this because later in this course we
will learn the differences between
 Corporate Level Strategy

 Business Level Strategy

BUSM 3200- Strategic Management (Jan 2013) GDS 20

Levels of strategy (2): an example

News Corporation
Corporate- diversifying from print
level journalism into social
strategy networking.

Website and marketing
Business-level improvements at My
Space to attract more
strategy users.

MySpace engineers
Operational strategy increasing processing
Capacity.

BUSM 3200- Strategic 1-21

Strategy statements
Strategy statements should have three main
themes:

the fundamental goals that the organisation
seeks, which draw on the stated mission,
vision and objectives

the scope or domain of the organisation’s
activities

and the particular advantages or capabilities it
has to deliver all these.


Working with strategy (1)
All managers are concerned with strategy:
Top managers frequently formulate and
control strategy but may also involve others in
the process.
Middle and lower level managers have to meet
strategic objectives and deal with constraints.
All managers have to communicate strategy to
their teams.
All managers can contribute to the formation
of strategy through ideas and feedback.


Working with strategy (2)
Organisations may also use strategy specialists:
Many large organisations have in-house
strategic planning or analyst roles.
Strategy consultants can be engaged from one
of many general management consulting firms
(e.g. Accenture, IBM Consulting, PwC).
There are a growing number of specialist
strategy consulting firms (e.g. McKinsey &Co,
The Boston Consulting Group).


Strategy’s three branches (1)

CONTEXT – internal and external.

CONTENT – strategic options.

PROCESS – formation and
implementation.


Strategy’s three branches (2)

Figure 1.3 Strategy’s three branches


The exploring strategy model

Note this very
well !!

Figure 1.4 The Exploring Strategy Model


Strategic position

The strategic position is concerned with
the impact on strategy of the external
environment, the organisation’s
strategic capability (resources and
competences), the organisation’s goals
and the organisation’s culture.


Strategic position: the key areas


Strategic position
Fundamental questions for Strategic Position:
• What are the environmental opportunities
and threats?
• What are the organisation’s strengths and
weaknesses?
• What is the basic purpose of the
organisation?
• How does culture shape strategy?


Strategic choices

Strategic choices involve the options
for strategy in terms of both the
directions in which strategy might
move and the methods by which
strategy might be pursued.


Strategic choices: the key areas


Strategic choices
Fundamental questions for Strategic Choice:
• How should business units compete?
• Which businesses to include in the portfolio?
• Where should the organisation compete
internationally?
• Is the organisation innovating
appropriately?
• Should the organisation buy other
companies, form alliances or go it alone?


Strategy in action

Strategy in action is about how
strategies are formed and how
they are implemented.
The emphasis is on the
practicalities of managing.


Strategy in action: the key areas


Strategy in action
Fundamental questions for Strategy in Action
• Which strategies are suitable, acceptable
and feasible?
• What kind of strategy-making process is
needed?
• What are the required organisation
structures and systems?
• How should the organisation manage
necessary changes?
• Who should do what in the strategy process?


The strategy checklist


Strategy is Evolving
A key aspect of strategy is that it changes over
time
Initially a planned or deliberate strategy could be
implemented BUT:
 Changes will occur
 The planned strategy may need to be modified or
abandoned altogether
In the process, new strategies may ‘emerge’
This is the work of Professor Henry Mintzberg


Emergent and Deliberate Strategies
Re: Mintzberg


Why a Firm’s Strategy Evolves over Time

♦ Managers modify strategy in response to:
● Changing market conditions
● Advancing technology
● Fresh moves of competitors
● Shifting buyer needs
● Emerging market opportunities
● New ideas for improving the strategy


Exploring strategy in different contexts
The Exploring Strategy Model can be applied in many
contexts.
In each context the balance of strategic issues
differs:
Small Businesses (e.g. Purpose and Growth
issues)
Multinational Corporations (e.g. Geographical
Scope and Structure/Control issues)
Public Sector Organisations (e.g. Service/Quality
and Managing Change issues)
Not For Profit Organisations (e.g. Purpose and
Funding issues; Multiple Stakeholders)
The issues and challenges of doing SM in these different contexts will be unique


The strategy lenses (1)

The strategy lenses are ways of looking at
strategy issues differently in order to generate
many insights. Looking at problems in
different ways will raise new issues and new
solutions.
This topic reminds us that there is always the
‘human dimension’ in SM
Lenses = Perspectives to planning


The strategy lenses (2)

Strategy can be seen as:
Design
Experience
Variety (Ideas)
Discourse Read the Commentary on
Strategy Lenses starting on page
27 of the text.
Read up especially the sections
on “implications for management”


Strategy as design

Strategic management is seen as a
process that is analytical and
rational. Need to evaluate and look
for the ‘best option’
Planning is top-down

Figure C.i Design lens


Strategy as experience

Strategy is a result of decisions
arising from the ‘cumulative
wisdom or experiences’ of the
mangers who are involved in
decision making
Strategy is likely to build on what
was done before; limited change.

Figure C.ii Experience lens


Strategy as variety

Strategy is not necessarily planned
or directed from the top
Rather it ‘emerges’ from within
and around the organization as it
responds to changes.
New ideas emerge as a result of
unpredictable and competitive
pressures.

Figure C.iii Variety lens


Adaptive tension (page 37)

Figure C.iv Adaptive tension


Simple Rules


Strategy as discourse

Strategy here focuses on the
dynamics of interactions
between the manager and
subordinates – one of
engaging in problem framing,
debating and then
communicating the decisions.
It focuses on the complexities
of human dynamics in SM


The strategy lenses summary

Table C.ii A summary of the strategy lenses


Just for INFO only
 Professor Henry Minztberg, well
known academic in Strategic
Management has an excellent text on
SM called the “Strategy Safari”
 The term safari is used because
strategy is complex and mangers are
in search of the ideal approach.
 In this book he highlights the
different “schools of thought” in
Strategy
 If you don’t read the book you can
always Google the essence of his
writing


A Key Issue in SM
Competitive Advantage
As you do you complete the chapter readings and
assignment in the weeks to come, keep thinking
about how the different topics you are covering
affect the issue of competitive advantage
This is the key issue in SM
How to gain and how to sustain competitive
advantage
The work of Professor Michael Porter focuses on
this. We cover this in great detail in Lecture 5.


The Quest for Competitive Advantage

♦ Competitive Advantage
● Meeting customer needs more effectively,
with products or services that customers
value more highly, or more efficiently, at
lower cost.
♦ Sustainable Competitive Advantage
● Giving buyers lasting reasons to prefer a
firm’s products or services over those of its
competitors.


IS OUR STRATEGY A WINNER?

The Strategic
Fit Test

The Competitive Winning The Performance
Advantage Test Test
Strategy


WHAT MAKES A STRATEGY
A WINNER?

♦ A winning strategy must pass three tests:
● The Fit Test
 Does it exhibit dynamic fit with the external and
internal aspects of the firm’s overall situation?
● The Competitive Advantage Test
 Can it help the firm achieve a significant and
sustainable competitive advantage?
● The Performance Test
 Can it produce good performance as measured
by the firm’s profitability, financial and
competitive strengths, and market standing?


STRATEGIC APPROACHES

♦ Building a competitive advantage by:
1. Striving to become the industry’s low-cost
provider (efficiency).
2. Outcompeting rivals on differentiating
features (effectiveness).
3. Focusing on better serving a niche market’s
needs (efficiency andor effectiveness).
4. Offering the lowest (best) prices for
differentiated goods (best-cost provider).


Chapter summary (1)

 Strategy is the long-term direction of an organisation. A
‘strategy statement’ should cover the goals of an
organisation, the scope of the organisation’s activities and
the advantages or capabilities the organisation brings to
these goals and activities.
 Corporate-level strategy is concerned with an organisation’s
overall scope; business-level strategy is concerned with how
to compete; and operational strategy is concerned with how
resources, processes and people deliver corporate- and
business-level strategy.
 Strategy work is done by managers throughout an
organisation, as well as specialist strategic planners and
strategy consultants.

Chapter summary (2)
• Research on strategy context, content and process shows
how the analytical perspectives of economics, sociology
and psychology can all provide practical insights for
approaching strategy issues
• The Exploring Strategy Model has three major elements:
understanding the strategic position, making strategic
choices for the future and managing strategy-in-action.
• Strategic issues are best seen from a variety of
perspectives, as exemplified by the four strategy lenses of
design, experience, variety and discourse.


PRACTICE ESSAY QUESTIONS
IMPORTANT NOTE: →
 These questions are provided for your reference only – they are only
INDICATIVE of the standard of questions you might expect in the final exam.
 DO NOT use these questions to “spot”
 The RMIT examiner will post advice on the exam on the Learning Hub closer
to the exam; you are required to pay attention to that advise
 The questions here show the range of topics that could be tested from this
lecture; they are NOT exhaustive
 To score a high grade it is important to LINK the theory to applications and
examples. Where from?
 You have been assigned specific cases to read from the text. Each case

study will show you the kinds of strategic decisions the case company
needs to make. You can draw from these examples.
 You have selected a case company for your project; you may use

examples from there.
 You are supposed to read widely from the business press about local,

regional and international companies strategies. You can use examples
from there as well.


Sample Essay Question

Our understanding of how strategy
development in organizations can be
enhanced through employing different
strategy lenses. Give examples to
illustrate your understanding.


SM Lecture One : Introducing Strategy

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