Business Policy

Strategy Formulation
Topic 1: The Concept of Strategy and the
Strategic Management Process
Lecture Plan
What is a strategy?
The strategic management process
Why strategic management is an ongoing
process
Who performs the tasks of SM?
Benefits of a strategic approach
What is a strategy?
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 these
goals
Chandler

a commitment to undertake one set of actions
rather than another
Oster
What is a Strategy? (2)
...the game plan management has for
positioning the company... entails choice
among alternatives and signals
organisational commitment to specific
markets, competitive approaches, and ways
of operating.
Thomson and Strickland


The strategy
pyramid
Influence

Operating
Function
Business
Corporate
Uniting the strategy-making effort through
vertical and horizontal linkages.
Co-ordination through mutually reinforcing
vision, objectives & strategies.
Different Levels of Strategy

Corporate - what business?
Business - how to compete in each business
Functional - in support of business level
The Strategic Management Process
Identify
current
mission,
objectives
& strategies
Analyze
Environment
Analyze
Resources
Identify
opps / threats
Identify
strengths &
weaknesses
Formulate
Strategies
Implement
Strategies
Evaluate
Results
SWOT ANALYSIS
Management, Robbins, S. & Coultar, M. 1996p. 259
Strategy Making - Process or Event?
Strategy making is an ongoing process
Boundaries between tasks:conceptual not
real
Managers have many other responsibilities
Crafting/ implementing happens erratically
Intended and Adaptive Strategy
strategy is a combination of planned actions
and on-the-spot adaptive reactions to freshly
developing industry and competitive events.

Respond to external/internal environment
Emergent Strategy


Who Performs the five tasks?
CEO and other managers
Strategic planners
Board of directors
The Three Strategy Making
Tasks
Develop a strategic vision/ business mission
Set objectives
Craft a strategy
Chesire Puss she (Alice) began ...
Would you please tell me which way I
ought to go from here

That depends on where you want to get
to, said the cat.

Lewis Carroll
If you dont know where youre going,
any old road will take you there.
Anonymous
Defines the current boundaries
Defines the business position
-Who are we?
- What do we do?

Mission
Present
What Business are you in: Coca
Cola
soft drinks?
Competition is Pepsi,
Finches
beverages?
Competition is tea, coffee,
softdrinks
thirst -quenching?
Competition is water & all
liquids!
Broad / Narrow Business Definition
Broad Narrow
Beverages Fizzy drinks
Childrens entertainment Toys for toddlers
Furniture Waterbeds
Travel River cruises in Egypt
Objectives
Strategic vs. Financial?
Long range vs. short range?
Challenging but achievable
Measurable
Strategic vs. financial objectives?
Strategic
focus is on competitors
eg. becoming the top company in the industry
Financial
focus is on financial performance
eg. acceptable profit margin/ ROI
Both are neccessary
company must survive in both short and
long term
Long vs. Short term?
Long term forces
early action
long term implications
considered
Short term encourages
speedy progress
Challenging but Achievable
objectives must be
realistic
but should stretch
funds/ resources must
be available to execute
the strategy
Measurable
Objectives must be
measureable
eg. growth in market share
of 5%
Deadlines must be set
eg. by December next

You cannot manage what
you cannot measure
Objectives needed at all levels
Parts supporting the whole

Top-down objective-setting
- cohesion
- leadership

Approaches to performing the
strategy making tasks
Master strategist: manager is chief architect
Delegate to others
Collaborative approach
Champion approach
Factors that
shape strategy

Craft a
Strategy
Industry
Attractive-
ness
Society
political
regulatory
Opportunity
threat
Companys strategic situation
Strengths
weakness
Manager
values /
ambitions
Culture
Evaluation
Choice
External
Internal
Societal, Political, Regulatory
Conditions
Limit the strategic actions that a company
can or should take
May cause company to change strategy
anti-smoking lobby (direct mkg/advertising)
lead-free petrol (eg Pura)
recycling
Industry Attractiveness
Strategy must be matched to industry and
competitive conditions eg.
technology shift
change in cost structure of industry
Market Opportunities and Threats
Be open to opportunities
Aim at capturing best growth opportunities
Defend against threats to well-being and
future performance
Organisational Strengths and
Weaknesses
Strategy must be well-matched to the
companys strengths
strategy should be grounded in what company
is good at doing
perilous to depend on what its not good at
Managers Values, Beliefs and
Ambitions
Management play a pivotal role
Strong leadership builds commitment
Management communication - buy-in



Strategy formulation:
deciding what to do
what you might do: opportunity
what you can do: resources
what youd liketo do: values/
ambitions
what you ought to do: ethics
Tests for a good strategy
Goodness of fit test
matches well the companys situation
internal
external
Competitive advantage test
leads to sustainable competitive advantage
Performance test
leads to superior performance
profitability
long term business/ market position strength
Benefits of a Strategic Approach
Direction
Adaptable / in-tune with environment
Basis for budget/resource allocation
Unifies decisions across organisation
Encourages pro-active management
Requires strategic thinking rather than gut-
feel/drift