1 Introduction To Strategy


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1 Introduction To Strategy

  1. 1. Strategic Management An Introduction to Strategy
  2. 2. Learning Outline <ul><li>What is strategic management? </li></ul><ul><li>Why is strategic management important? </li></ul><ul><li>Who is involved with strategic management? </li></ul><ul><li>Strategic management today </li></ul>
  3. 3. A definition of strategy <ul><li>Goal-directed decisions and actions in which capabilities and resources are matched with the opportunities and threats in the environment. </li></ul>
  4. 4. Military influences in strategy <ul><li>“ Strategos” referred to a general in command of an army </li></ul><ul><li>The art of the general </li></ul><ul><ul><li>By 450 B.C. it came to mean managerial skill </li></ul></ul><ul><ul><li>By 330 B.C. it referred to the skill of employing forces to overcome positions to create a system of global governance </li></ul></ul><ul><li>Carl von Clausewitz “tactics…(involve) the use of armed forces in the engagement, strategy (is) the use of engagements for the object of war” 1838 On War </li></ul>
  5. 5. Academic influences in strategy <ul><li>1911 Scientific management (Taylor) – Still in place today (UPS), some consider it micromanaging </li></ul><ul><li>HBS requires a class in Business Policy in 1912 </li></ul><ul><li>Adam Smith’s “invisible hand” (the market) gives way to Alfred Sloan (GM CEO from 1923-1946) concept of the “visible hand”—middle manager </li></ul><ul><li>Chester Bernard influential book “The Executive” argues that managers should pay attention to “strategic factors” </li></ul><ul><li>Ronald Coase’s 1937 article “why firms exist” (Nobel Prize in economics) and Joseph Schumpter’s concept of “disruptive technologies” written in 1942 bring in organizational economics </li></ul><ul><li>Max Weber warns against bureaucratic organizations but sees a shift toward this way of organizing </li></ul>
  6. 6. Recent influences in strategy <ul><li>1960s (Strategy and structure; Corporate Strategy) </li></ul><ul><ul><ul><li>1963 Harvard business conference leads to SWOT analysis </li></ul></ul></ul><ul><ul><ul><li>BCG founded in 1963 “strategy boutique” </li></ul></ul></ul><ul><ul><ul><ul><li>Created the portfolio analysis </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Stars, dogs, cash cows, question marks </li></ul></ul></ul></ul></ul><ul><li>1980s (Porter’s 5 forces) </li></ul><ul><li>1990s (Resource based view of the firm) </li></ul>
  7. 7. Why is strategic management important? <ul><li>Gives everyone a role </li></ul><ul><li>Makes a difference in performance levels </li></ul><ul><li>Provides systematic approach to uncertainties </li></ul><ul><li>Coordinates and focuses employees </li></ul>
  8. 8. Why Strategy? <ul><li>To change, an organization needs </li></ul><ul><ul><li>Burning Platform </li></ul></ul><ul><ul><li>Vision </li></ul></ul><ul><ul><li>Leadership </li></ul></ul><ul><ul><li>Strategic Management </li></ul></ul><ul><ul><li>Political Management </li></ul></ul>
  9. 9. Strategy vs. Strategic Management <ul><li>Strategy </li></ul><ul><ul><li>A series of goal-directed decisions and actions matching an organization’s skills and resources with the opportunities and threats in its environment </li></ul></ul><ul><li>Strategic management </li></ul><ul><ul><li>Analyze current situation </li></ul></ul><ul><ul><li>Develop appropriate strategies </li></ul></ul><ul><ul><li>Put strategies into action </li></ul></ul><ul><ul><li>Evaluate, modify, or change strategy </li></ul></ul>
  10. 10. Strategy vs. Strategic Management <ul><li>Strategy involves </li></ul><ul><ul><li>Organization’s goals </li></ul></ul><ul><ul><li>Goal-oriented action </li></ul></ul><ul><ul><li>Related decisions and actions </li></ul></ul><ul><ul><li>Internal strengths </li></ul></ul><ul><ul><li>External opportunities and threats </li></ul></ul><ul><li>Strategic management </li></ul><ul><ul><li>Planning </li></ul></ul><ul><ul><li>Organizing </li></ul></ul><ul><ul><li>Implementing </li></ul></ul><ul><ul><li>Controlling </li></ul></ul>
  11. 11. Basics of Strategic Management <ul><li>Four aspects that set strategic management apart </li></ul><ul><ul><li>Interdisciplinary </li></ul></ul><ul><ul><ul><li>Capstone of the Business degree </li></ul></ul></ul><ul><ul><li>External focus </li></ul></ul><ul><ul><ul><li>Competition </li></ul></ul></ul><ul><ul><li>Internal focus </li></ul></ul><ul><ul><li>Future direction </li></ul></ul>
  12. 12. Strategic Management Process Analyzing Current Situation Deciding on Strategies Putting Strategies in Action Evaluating and Changing Strategies Situation Analysis Strategy Formulation Strategy Implementation Strategy Evaluation Chapter 2 Chapter 3 Chapter 4 External Analysis Internal Analysis Chapter 5 Chapter 6 Chapter 7 Functional Competitive Corporate
  13. 13. Strategic Management Process <ul><li>Situation Analysis </li></ul><ul><ul><li>Scanning & evaluating context </li></ul></ul><ul><ul><li>Internal and External environments </li></ul></ul><ul><li>Strategy formulation </li></ul><ul><ul><li>Functional </li></ul></ul><ul><ul><li>Competitive </li></ul></ul><ul><ul><li>Corporate strategies </li></ul></ul>
  14. 14. Levels of strategy Competitive: How are we going to compete in our chosen business(es)? Functional What resources and capabilities do we have to support the corporate and competitive strategies? Corporate What direction are we going and what business(es) are we in or do we want to be in?
  15. 15. Strategic Management Process <ul><li>Strategy implementation </li></ul><ul><ul><li>Process of putting strategies into action </li></ul></ul><ul><ul><li>Consider implementation at each level </li></ul></ul><ul><li>Strategy evaluation </li></ul><ul><ul><li>Was the strategy effective? </li></ul></ul><ul><ul><li>“Close the loop” </li></ul></ul>
  16. 16. Who does strategy? <ul><li>The Role of the Board of Directors </li></ul><ul><ul><li>Elected representatives of the company’s stockholders </li></ul></ul><ul><ul><li>Legally obligated to represent and protect stockholder’s </li></ul></ul><ul><li>The Role of Top Management </li></ul><ul><ul><li>Responsible for decisions and action of every employee </li></ul></ul><ul><ul><li>Providing effective leadership </li></ul></ul><ul><li>Other Organizational Employees </li></ul><ul><ul><li>Implement— put the strategies into action and monitor performance </li></ul></ul><ul><ul><li>Evaluate—do the actual evaluations and take necessary actions </li></ul></ul>
  17. 17. The Role of the Board of Directors <ul><li>Review and approve strategic goals and plans </li></ul><ul><li>Review and approve organization's financial standards and policies </li></ul><ul><li>Approve an organizational philosophy </li></ul><ul><li>Monitor organizational performance and regularly review performance results </li></ul><ul><li>Select, evaluate, and compensate top-level managers </li></ul><ul><li>Develop management succession plans </li></ul><ul><li>Monitor relations with shareholders and other key stakeholders </li></ul>
  18. 18. Who is on the board of directors? <ul><li>Chairman of the board </li></ul><ul><ul><li>Chief Executive officer (CEO) </li></ul></ul><ul><li>President </li></ul><ul><ul><li>Chief Operating officer (COO) </li></ul></ul><ul><li>Other C’s </li></ul><ul><ul><li>Chief Financial officer </li></ul></ul><ul><ul><li>Chief Information officer </li></ul></ul><ul><li>Inside board members </li></ul><ul><li>Outside board members </li></ul>
  19. 19. The Role of Top Management Effective Strategic Leadership Exploiting and Maintaining Core Competencies Developing Human Capital Creating and Sustaining Strong Organizational Culture Emphasizing Ethical Decisions and Practices Establishing Appropriately Balanced Controls Determining Organizational Purpose or Vision
  20. 20. Strategic Management Principle <ul><li>Effective strategy-making begins with a vision of where the organization needs to head! </li></ul>
  21. 21. Elements of a Strategic Vision Use the mission statement as a starting point Develop a strategic vision that spells out a course to pursue Communicate the vision in a clear and exciting manner
  22. 22. Characteristics of a Mission Statement <ul><li>Defines current business activities </li></ul><ul><li>Highlights boundaries of current business </li></ul><ul><li>Conveys </li></ul><ul><ul><li>Who we are, </li></ul></ul><ul><ul><li>What we do, and </li></ul></ul><ul><ul><li>Where we are now </li></ul></ul>
  23. 23. Characteristics of a Mission Statement <ul><li>Company specific , not generic —so as to give a company its own identity </li></ul><ul><li>A company’s mission is not to make a profit ! </li></ul><ul><li>The real mission is always— “What will we do to make a profit?” </li></ul>
  24. 24. Examples of Missions Empower people through great software any time, any place, and on any device. Microsoft Corporation
  25. 25. Examples of Missions Otis Elevator Our mission is to provide any customer a means of moving people and things up, down, and sideways over short distances with higher reliability than any similar enterprise in the world.
  26. 26. Examples of Mission The mission of the American Red Cross is to improve the quality of human life; to enhance self-reliance and concern for others; and to help people avoid, prepare for, and cope with emergencies . American Red Cross
  27. 27. Ritz-Carlton Hotels The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests is our highest mission . We pledge to provide the finest personal service and facilities for our guests who will always enjoy a warm, relaxed yet refined ambiance . The Ritz-Carlton experience enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests (vision)
  28. 28. Characteristics of a Strategic Vision <ul><li>Charts a company’s future strategic course </li></ul><ul><li>Defines the business makeup for 5 years (or more) </li></ul><ul><li>Specifies future technology-product-customer focus </li></ul>
  29. 29. Communicating the Vision <ul><li>An exciting, inspirational vision </li></ul><ul><ul><li>Challenges and motivates workforce </li></ul></ul><ul><ul><li>Arouses strong sense of organizational purpose </li></ul></ul><ul><ul><li>Induces employee buy-in </li></ul></ul><ul><ul><li>Galvanizes people to live the business </li></ul></ul>
  30. 30. Value of a Well-Conceived Strategic Vision and Mission <ul><li>Crystallizes long-term direction </li></ul><ul><li>Reduces risk of rudderless decision-making </li></ul><ul><li>Conveys organizational purpose and identity </li></ul><ul><li>Keeps direction-related actions of lower-level managers on common path </li></ul><ul><li>Helps organization prepare for the future </li></ul>
  31. 31. Concept of Strategic Intent <ul><li>A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective and concentrates its competitive actions and energies on achieving that objective! </li></ul>
  32. 32. Lessons about change: Built to last <ul><li>Understand why superior companies are better than peer companies which are better than most companies </li></ul><ul><ul><li>$1 invested in stock market in 1926 yields </li></ul></ul><ul><ul><ul><li>$420 in all other companies </li></ul></ul></ul><ul><ul><ul><li>$960 in peer companies </li></ul></ul></ul><ul><ul><ul><li>$6360 in superior (visionary) companies </li></ul></ul></ul>
  33. 33. Who are these companies <ul><li>Visionary </li></ul><ul><ul><li>3M </li></ul></ul><ul><ul><li>Boeing </li></ul></ul><ul><ul><li>GE </li></ul></ul><ul><ul><li>IBM </li></ul></ul><ul><ul><li>Motorola </li></ul></ul><ul><ul><li>Nordstrom </li></ul></ul><ul><ul><li>P&G </li></ul></ul><ul><ul><li>Sony </li></ul></ul><ul><ul><li>Wal-mart </li></ul></ul><ul><li>Peer companies </li></ul><ul><ul><li>Norton </li></ul></ul><ul><ul><li>McDonnell Douglass </li></ul></ul><ul><ul><li>Westinghouse </li></ul></ul><ul><ul><li>Burroughs </li></ul></ul><ul><ul><li>Zenith </li></ul></ul><ul><ul><li>Melville </li></ul></ul><ul><ul><li>Colgate </li></ul></ul><ul><ul><li>Kenwood </li></ul></ul><ul><ul><li>Ames </li></ul></ul>
  34. 34. So what did they find? <ul><li>Great companies had BHAG </li></ul><ul><ul><li>Big Hairy Audacious Goals </li></ul></ul><ul><li>What ever your values are “stick with it” </li></ul><ul><li>Deal with the AND, not the OR </li></ul><ul><li>Seek Alignment (internally) </li></ul>
  35. 35. Characteristics of Strategic Intent <ul><li>Indicates firm’s intent to stake out a particular position over the long-term </li></ul><ul><li>Involves establishing a BHAG - ”big, hairy, audacious goal” </li></ul><ul><li>Signals relentless commitment to winning </li></ul>
  36. 36. Example of BHAG <ul><ul><li>General Electric </li></ul></ul><ul><ul><ul><li>All businesses are held to a standard of being #1 or #2 in their industries as well as achieving good business results </li></ul></ul></ul><ul><ul><li>John F. Kennedy </li></ul></ul><ul><ul><ul><li>Put a man on the moon and return safely by the end of the decade </li></ul></ul></ul>
  37. 37. Crafting a Strategy <ul><li>An organization’s strategy deals with </li></ul><ul><ul><li>How to make the strategic vision a reality and achieve target objectives </li></ul></ul><ul><ul><li>The game plan for </li></ul></ul><ul><ul><ul><li>Pleasing customers </li></ul></ul></ul><ul><ul><ul><li>Conducting operations </li></ul></ul></ul><ul><ul><ul><li>Building a sustainable competitive advantage </li></ul></ul></ul>
  38. 38. Take Aways <ul><li>Strategy has become more important </li></ul><ul><ul><ul><li>Information, technology, globalization </li></ul></ul></ul><ul><li>Key ideas in the strategy making process </li></ul><ul><ul><li>Mission (who are we) </li></ul></ul><ul><ul><li>Vision (where do we want to go) </li></ul></ul><ul><ul><li>Strategic intent / BHAG (major goal) </li></ul></ul><ul><ul><li>Strategy (specific plan at different levels) </li></ul></ul><ul><ul><li>Ethics (code of conduct or values) </li></ul></ul><ul><li>Linkage & communication are important </li></ul><ul><li>Avoid mission creep! </li></ul>
  39. 39. Take Aways <ul><li>Where strategy came from </li></ul><ul><li>Strategic Management Process </li></ul><ul><li>Who does strategy </li></ul><ul><li>Next week </li></ul><ul><ul><li>Read Airline Simulation Book (1-35) </li></ul></ul><ul><ul><li>Bring Laptop </li></ul></ul>