Chapter 1

Strategic
Management
Introduction to Business Strategy

Strategic Planning - Slide 1

I. Definition
Strategic Management

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 Strategic Management
Definition

What is Strategy?

A business strategy defines the way a firm

competes in an industry.

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 Strategic Management
Definition

“If I had six hours to chop down a tree, I’d spend the first
four sharpening the axe.”
Abraham Lincoln

Thinking before action

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 Strategic Management
Definition

What is Strategy? A more comprehensive definition…

Strategy is the direction and scope of an organization

over the long term,
which achieves advantage
in a changing environment
through its configuration of resources and competences
with the aim of fulfilling stakeholders expectations.

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 Strategic Management
Definition

A strategy answer the basic questions:

Who are we?

Where are we?
Where do we go?
How to go there?

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 Strategic Management
Definition

The strategic management process (or

strategic process)

• The strategic management process refers to the

process itself of defining the organization’s strategy.

• It is the process by which managers make a choice of

a set of strategies for the organization to achieve
better performances.

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 Strategic Management
Definition

The 5 steps of the strategic management process

1. Direction (Mission, Vision, Culture)

2. Environment scanning
3. Strategy Formulation
4. Implementation
5. Evaluation and control

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Strategic Management

Mission, vision
& culture
Set the Direction of the Company
Who are we? Where do we go? (big direction)

Understand the company’s environment

Where are we?

Deciding the best course of action

Where do we go and how?

putting the strategy into action

How do we get there?

Make sure strategic objectives are met

Are we on the right tracks?
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 Strategic Management
Definition

The strategic process

• The strategic process within a company may be
formal (i.e. follow predetermined strict rules and schedule) or
informal (“on the fly”, uncoordinated and dynamically)
• The bigger the structure, the more formal the process:
 With a dedicated team
 Regular meetings and a final strategic reports

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Strategic Management
Strategy in Practice

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 Strategic Management
Definition

• Factors influencing the rise of corporate planning:

– Development of theory in strategic
management
– Increasing, global competition
– Rising complexity of economic/social
environment

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2. Strategy Levels
Strategic Management

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 Strategic Management
Strategy Levels

• Strategy exist at a number of levels in a an

organization.
1. The top level is Corporate strategy level
2. The second level is Business-level strategy
3. The third level of strategy is at the operating end
of an organisation: Operational (or Functional)
strategies

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 Strategic Management
The 3 Levels of Strategy

i.e. (Sony Corporation)

Corporate Corporate Strategy
level

A division of the Strategic

company (i.e. TV
Business Unit Business Strategy
Division)
(SBU) level
A Department of the
company (i.e. Marketing, Functional Strategy
Production,…) Functional level

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Strategic Management
The 3 Levels of Strategy

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 Strategic Management
LG Electronics Business Units

• Home Entertainment
– LCD TVs, Plasma TVs, Audio, Video, Optical Storage
• Mobile Communications
– Mobile handset (CDMA/GSM/3G), Mobile Accessory, PCB, WLL
• Home Appliance
– Washing Machines, Refrigerators, Cooking Appliances, Vacuum Cleaners, Built-
in Appliances
• Air Conditioning
– Residential Air Conditioners , Commercial Air Conditioners, Home Solution,
Compressors
• Business Solutions
– Monitors, Commercial Displays, Car Infotainment, Security Business
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 Strategic Management
MacDonald’s business units

Some very large firms, such as McDonald’s, are

essentially single businesses.

What is McDonald’s turn over and profit?

Where do they make more money?

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 Strategic Management
Strategy Levels

Corporate Level Strategy

What do we decide at the Corporate-level strategy?
1. Define the direction
• Determine the Mission and Vision
• Build the Culture and Values
• The Corporate’s big Goals

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 Strategic Management
Strategy Levels

Corporate Level Strategy

What do we decide at the Corporate-level strategy?
2. Manage the portfolio of business units:
• Looking at which businesses to enter and exit,
and managing relationships between them.
• Develop synergies among business units
(resources may be shared across businesses)
• Allocate capital and managerial resources to the
different businesses

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 Strategic Management
Strategy Levels

Corporate Level Strategy

What do we decide at the Corporate-level strategy?
3. Define the Structure: Establishing appropriate
the appropriate organization
• How to structure the organization?
– Corporate Structure:
o A corporate structure is the layout of the various
departments, divisions, and job positions that interact
to conduct the business of the company.

– IT (information technology) architecture

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 Strategic Marketing
Strategies Level

Business (or Business Unit) Level Strategy

What do we decide at the Business-level strategy?

• A strategic business unit (SBU) is a profit center

that can be planned independently from the other
business units of the firm.
• Concerns organizations characterized by multiple
product lines.

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 Strategic Management
Strategy Levels

Business (or Business Unit) Level Strategy

What do we decide at the Business-level strategy?

– Set the SBU’s Goals and objectives

– Target the appropriate markets and define the
products / services lines to enter, maintain, develop
or exit.
– developing a competitive advantage for the
products/ services lines.

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 Strategic Management
Strategy Levels

Functional Level Strategy

What do we decide at the Functional-level strategy?

• The functional level of the organization is the level of

the operating departments.
• The functional level strategies concern the following
departments:
Marketing R&D
Sales Information Technology
Finance and Accounting Purchases
Production Logistics
Human Resources etc.
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 Strategic Management
Strategy Levels

Functional Level Strategy

What do we decide at the Functional-level strategy?

• The functional strategies contain the details of how

each functional area should will contribute to the SBU
strategic plan and beyond to the Corporate strategic
plan.
– Example: The Marketing strategy will develop the
Marketing Mix for each product and product lines
according to the SBU strategic choices.

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 Strategic Management

Core questions Strategic Process Organizational level

Who are we? Mission and Culture Corporate

Where do we go? Vision and Goals Corporate

Where are we? Environmental scanning Corporate and SBU

How do we get Strategy Formulation SBU & Functional

there?
Strategy Implementation Functional

Evaluation and Control Functional

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 Strategic Management
The 3 Levels of Strategy in large - multiproduct organizations

Environmental Company Head Quarter

Factors Direction
Corporate
Strategy
Mission and Values - SBUs
Goals Structure
Vision Culture portfolio

SBU 1 SBU 2 SBU 3

Business Business Unit

Unit Products
Goals and Competitive Strategy
Lines
objectives Advantage
portfolio

HR Strategy R&D Marketing Operations I.T.

Strategy strategy Strategy
Functional
Strategy
Segmentation +
Business Functions Marketing Mix
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