Strategic Management

An Introduction
 The Success MANTRA
1. Be Audicious in your
vision-
• CAPITAL IS NOT
SCARCE VISION IS
2. Good Governance makes
business sense
3. Develop Leaders from
within
The Success MANTRA
4. Pursue Quality with
Zeal
5. Innovate to create
value for customers
6.Forge stronger
partnership with your
supplier base
The Success MANTRA
7. Trim flab to achieve
operational
Excellence
8. Give back to the
society
(CSR AND
SUSTAINABLE
DEVELOPMENT)
“Somehow there are organizations that effectively
manage change, continuously adapting their
bureaucracies, strategies, systems, products,
services and cultures to survive the shocks and
prosper from the forces that decimate others . . .
they are the masters of what I call
renewal.”
Robert H. Waterman, Jr.
The Renewal Factor
 Strategic management
is a set of
managerial decisions
and actions aimed at
the generation of
sustainable competitive advantage.
 SUSTAINABLE
COMPETITIVE ADVANTAGE
"A firm is said to have a sustained
advantage when it is implementing a
value creating strategy not
simultaneously being implemented by
any current or potential competitors
and when these other firms are unable
to duplicate the benefits of this
strategy”
 SUSTAINABLE
COMPETITIVE ADVANTAGE
Hall (1980) "Survival Strategies in a Hostile
Environment" --
Successful companies will achieve either the
lowest cost or most differentiated position.

Henderson (1983) "The Anatomy of Competition"

--
Those who can adapt best or fastest gain an
advantage over competitors in a Hostile
Environment
 SUSTAINABLE
COMPETITIVE ADVANTAGE
• customer orientation
• Porter’s "value chain" approach
• Business networks consist of multiple
relationships, with each participating firm
gaining the resources needed to build
core competencies and obtain an SCA.
Two Approaches To Strategic
Management

• The Prescriptive Approach

And

• The Emergent Approach.

 Prescriptive Approach
Strategy As Design
• The view that strategy development can be a logical
process in which economic forces and constraints on the
organisation are weighed carefully through analytic and
evaluative techniques to establish clear strategic
direction and in turn carefully planned in its
implementation is perhaps the most commonly held view
about how strategy is developed and what managing
strategy is about. It is usually associated with the notion
that it is top management’s responsibility to do this and
that top management lead the development of strategy
in organisations.
• Kenneth Andrews at Harvard
 Strategy As Design
• He has dealt with what the firm might do (market
opportunities and threats) and what the firm
should do (social responsibility) and coupled
these external issues to the internal ones of
what the firm could do (corporate competence-
strength and weakness) and what the firm wants
to do (ambition), thus suggesting a “fit” between
environment and organization.
• SWOT ANALYSIS
• PEST Analysis
 Strategy As Design
• In 1960s, the publication of Strategy and Structure:
Chapters in the History of the American Industrial
Enterprise by renowned US management expert Alfred
D. Chandler pioneered the study of corporate strategic
problems.
• Chandler analyses the interaction between the
environment, strategies and the organization and comes
up with the viewpoint of “structure follows strategy”.
• He believes that a company’s operational strategies
must be adaptive to the environment i.e. to fulfill market
demands, and the organizational structure must be
adaptive to the company’s strategies by changing
constantly with the strategies.
 Strategy As Planning
• strategy structure is a controlled, purposed
formal planning process. The senior
manager is responsible for the whole
process of the planning, while the staff
laying out and implementing the plan all
need to report to the senior manager. The
established strategies should be carried
out through breaking down the goals,
projects and budgets.
 “corporate strategy”,
Igor Ansoff
“the way that an organization plans to
realize its goals and missions, including
the formulation and evaluation of all kinds
of proposals, and the final proposal to be
implemented.”
 The Summary
(1)The starting point of corporate strategies is to adapt to
the environment, which is beyond the control of the
corporate. A corporate cannot survive and grow unless it
adapts to the environment;
(2)The strategic goal of a corporate is to achieve a larger
market share. The strategies should be responsive to the
changing environment, meet market demands and grab
enough market shares to survive and grow better;
(3)The implementation of strategies requires the
organization structure to be adjusted accordingly.
 Basic Model of
Strategic Management
Four Basic Elements
Of
Strategic Management
 The Emergent Approach.
Strategy As Ideas
• This lens emphasises more the potential variety
and diversity which exists in organisations and
which can potentially generate novelty. Here
strategy is not so much seen as planned from the
top but emergent from within and around the
organisation as people cope with an uncertain and
changing environment in their day-to-day activities.
New ideas will emerge; but they are likely to have to
battle for survival against the forces for conformity
to past strategies that the experience lens explains.
MINTZBERG’ S 5 P’s of Strategy
 Environmental Scanning
• Doing a situation analysis, both micro-
environmental and macro-environmental
• Socio-Economic
• Political-Legal
• Technological
Environmental Scanning
The New Business Environment

Drivers of the New

Business Environment
• Information revolution
• Technological advances
and breakthroughs
• Globalization

Implications Critical Success Factors

• Continual turbulence and change
• Reduced need for physical assets
• Vanishing distance/compressed
time
• Decreased vulnerability
• Ability to embrace change
• Creativity and innovation
capabilities
• Being a world-class organization
 Drivers of the New Business
Environment
The Information Revolution
• Information readily available
• Information as the essential resource of production

Technological Advances and Breakthroughs

• Perform tasks with equipment, materials, knowledge,
and experience
• Five major technological trends
 Drivers of the New Business
Environment

 Technology is starting to pay back with real savings and real

productivity gains
 Innovations are increasingly being commercialized
 There is an increasing dependence on information and knowledge
 Technology, especially information technology, is creating deep
structural transformations in the economy
Network capabilities mean everything is connected
Digital technology is making businesses smarter
Digital technology has helped create completely new sub-industries
The economy is becoming a “bottom-up” economy
 Great companies are pioneers and leaders in applying technology
 Drivers of the New Business
Environment
Globalization
• Specific ways global factors impact
– Global marketplace
– Global competitors

• Globalization
– Solves customer needs
– Segments markets on a global basis
 Strategy Formulation
• Doing a situation analysis: both internal and external; both micro-
environmental and macro-environmental.
• Concurrent with this assessment, objectives are set. This involves
crafting vision statements (long term view of a possible future),
mission statements (the role that the organization gives itself in
society), overall corporate objectives (both financial and strategic),
strategic business unit objectives (both financial and strategic), and
tactical objectives.
• These objectives should, in the light of the situation analysis,
suggest a strategic plan. The plan provides the details of how to
achieve these objectives.
• This three-step strategy formulation process is sometimes referred to
as determining where you are now, determining where you want to
go, and then determining how to get there. These three questions
are the essence of strategic planning. SWOT Analysis: I/O
Economics for the external factors and RBV for the internal factors.
 Vision

Vision is a short and inspiring statement of

what the organization intends to become
and to achieve at some point in the future,
often stated in competitive terms. Vision
refers to the category of intentions that are
broad, all-intrusive and forward-thinking. It
is the image that a business must have of
its goals before it sets out to reach them. It
describes aspirations for the future,
without specifying the means that will be
used to achieve those desired ends.
 Strategic Intent

• A strategic intent is a company's vision of

what it wants to achieve in the long term. It
must convey a significant stretch for your
company, a sense of direction, discovery,
and opportunity that can be communicated
as worthwhile to all employees. It should
not focus so much on today's problems
but rather on tomorrow's opportunities.
 Strategic Stretch
• A) The fit between the organisation
and its environment.
• B) Creating new opportunities by
stretching and exploiting capabilities
in new ways.
• C) The skills of the senior
management.
• D) Utilising all the resources of an
organisation to their full capacity.
 Mission Statement

• A mission statement is an
organization's vision translated into
written form. It makes concrete the
leader's view of the direction and
purpose of the organization. For many
corporate leaders it is a vital element in
any attempt to motivate employees and
to give them a sense of priorities
 Strategic Choice
• Constructing Organizational Scenarios:
– Steps in constructing scenarios –
1. Use industry scenarios
2. Develop common-size financial statements
3. Construct detailed pro forma financial statements for each
alternative that forecast effects on return on investment
 Scenario Box to Generate Pro Forma
Statements
Projections
Last Historical Trend 19— 19— 19—
Factor Year Average Analysis O P ML O P ML O P ML Comments

GDP
CPI
Other
Sales units
Dollars
COGS
Advertising & marketing
Interest expense
Plant expansion
Dividends
Net profits
EPS
ROI
ROE
Other
 Strategic Choice
• Attitude Toward Risk:
– Risk is composed of:

• Amount of assets committed

• Length of time of asset commitment
 Strategic Choice
• Pressures from Stakeholders
1. How will this decision affect each stakeholder,
especially those given high and medium priority?
2. How much of what each stakeholder wants are
they likely to get under this alternative?
3. What are they likely to do if they don’t get what
they want?
4. What is the probability that they will do it?
 Strategic Choice
• Pressures from Organizational Culture
– If a strategy is incompatible with the
organizational culture, the likelihood of its
success is very low.
– Foot-dragging and even sabotage will result
as employees fight to resist a radical change
in organizational philosophy.
 Strategic Choice
• Process of Strategic Choice:
– The evaluation of alternative strategies and
selection of the best alternative
• Not based on consensus
• Discussion, disagreement
• Programmed conflict
 Strategy As Experience:
• The view is that future strategies of organisations
are based on the adaptation of past strategies
influenced by the experience of managers
and others in the organisation; and are taken
for granted assumptions and ways of doing things
embedded in the cultural processes of
organisations. In so far as different views and
expectations exist, they will be resolved, not just
through rational analytic processes, but through
processes of bargaining and negotiation. Here, then,
the view is that there is a tendency for the strategy
of the organisation to build on and be a continuation
of what has gone before
 Strategic Choice
• Process of Strategic Choice:
– Devil’s Advocate
• Identify potential pitfalls and problems with
a proposed alternative strategy in a formal
presentation.
 Strategic Choice
• Process of Strategic Choice:
– Dialectical Inquiry
• Two proposals are generated using
different assumptions for each alternative
strategy
 Strategy Implementation
• Allocation of sufficient resources (financial, personnel, time,
technology support)
• Establishing a chain of command or some alternative
structure (such as cross functional teams)
• Assigning responsibility of specific tasks or processes to
specific individuals or groups
• When implementing specific programs, this involves
acquiring the requisite resources, developing the process,
training, process testing, documentation, and integration
with (and/or conversion from) legacy processes.
 Strategic Evaluation
It involves managing the process
•monitoring results
•comparing to benchmarks and best practices
• evaluating the efficacy and efficiency of the
process, controlling for variances, and making
adjustments to the process as necessary.
 Prescriptive Strategic Process:
Limitations
Mintzberg (1990) identifies a number of major difficulties with the
prescriptive strategic process:
• The future can be predicted accurately enough to make rational
discussion and choice realistic. However, as soon as a competitor
or a government does something unexpected the whole process
may be invalidated.
• It is possible and better to forgo the short-term benefit in order to
obtain long-term good. This may be incorrect: it may not be possible
to determine the long-term good and, even if it were, those involved
may not be willing to make the sacrifice, such as jobs or investment.
This is particularly relevant within local government, which is shaped
by direct democratic control at a local level.
• The strategies proposed are, in practice, logical and capable of
being managed in the way proposed. Given the political realities of
many organisations, there may be many difficulties in practice.
 Prescriptive Strategic Process:
Limitations
• The chief executive has the knowledge and power to choose
between options. He does not need to persuade anyone, or
compromise on his decisions. This may be extraordinarily naïve in
many organisations where the culture and leadership seek
discussion as a matter of normal practice.
• After careful analysis, strategy decisions can be clearly specified,
summarised, and presented; they do not require further
development, nor do they need to be altered because
circumstances outside the organisation have changed. This point
may have some validity but is not always valid.
• Implementation is a separate and distinctive phase that only comes
after a strategy has been agreed: for example, a strategy to close
a factory merely required a management decision and then it just
happens. This is extraordinarily simplistic in many complex strategic
decisions.
 The Emergent Approach.
The Evolutionary School

• Within the evolutionary school, commentators

Mintzberg, 1990) argue that fully-fledged
strategies rarely exist, with strategic decisions
seldom the result of planned moves. Moreover,
their empirical research has shown that the
assumption that strategies are logical and
rational is flawed; they do not take into account
the reality of managerial decision making.
 Mintzberg's 5 Ps for Strategy

The word "strategy" has been used implicitly in

different ways even if it has traditionally been
defined in only one. Explicit recognition of multiple
definitions can help people to manoeuvre through
this difficult field. Mintzberg provides five definitions
of strategy:
• Plan
• Ploy
• Pattern
• Position
• Perspective
 Mintzberg's 5 Ps for Strategy
Plan
Strategy is a plan - some sort of consciously intended course of action, a guideline (or set
of guidelines) to deal with a situation. By this definition strategies have two essential
characteristics: they are made in advance of the actions to which they apply, and they are
developed consciously and purposefully
Pattern
• If strategies can be intended (whether as Perspective
general plans or specific ploys), they can • Strategy is a perspective - its content
also be realised. In other words, defining consisting not just of a chosen position,
strategy as plan is not sufficient; we also but of an ingrained way of perceiving the
need a definition that encompasses the world. Strategy in this respect is to the
resulting behaviour: Strategy is a pattern - organisation what personality is to the
specifically, a pattern in a stream of actions. individual. What is of key importance is
Strategy is consistency in behaviour, whether
or not intended. The definitions of strategy as that strategy is a perspective shared by
plan and pattern can be quite independent of members of an organisation, through
one another: plans may go unrealised, while their intentions and / or by their actions.
patterns may appear without preconception. In effect, when we talk of strategy in this
Position context, we are entering the realm of the
• Strategy is a position - specifically a means
collective mind - individuals united by
of locating an organisation in an common thinking and / or behaviour.
"environment". By this definition strategy
becomes the mediating force, or "match", Ploy
between organisation and environment, that
is, between the internal and the external • As plan, a strategy can be a ploy too,
context. really just a specific manoeuvre intended
to outwit an opponent or competitor.
 Emergent Strategy

• An emergent strategy is a pattern of action that

develops over time in an organization in the
absence of a specific mission and goals, or
despite a mission and goals.
• Emergent strategy is sometimes called realized
strategy. An emergent strategy or realized
strategy differs from an intended strategy.
• Mintzberg argues that strategy emerges over
time as intentions collide with and accommodate
a changing reality.
 Emergent Strategy
• Emergent strategy is a set of actions, or
behavior, consistent over time, "a realized
pattern [that] was not expressly intended" in the
original planning of strategy. When a deliberate
strategy is realized, the result matches the
intended course of action. An emergent strategy
develops when an organization takes a series of
actions that with time turn into a consistent
pattern of behavior, regardless of specific
intentions. "
What is the role of strategic management in the knowle
organisation?
• As we have entered into a dramatic restructuring of
the global economy in which knowledge
organisations serve knowledge-intensive industries,
which in turn create, or are encouraged by the
knowledge economy.
• The approach to strategic management of the
organisations, industries and economies where
knowledge is both an enabler and goal is almost
completely at variance to older ‘planning’ and
positioning approaches, rooted as they were in a
neo-classical production function view of the firm in
a perfect competition, mass production industry
paradigm.“
 Major Inferences
• Top management cannot know, understand or plan the future.
• Management needs to encourage new ideas and be aware of the
external environment
• Encourage social interaction.
• Ideas within an organisation are less likely to be developed
through formal analysis and more likely to be developed by a
reliance on pattern recognition based on experience and intuition
• Adaptive tension is inevitable within an organisation
• Strategic management is about identifying order as it emerges
rather than directing the order
• Others say the role of top management is to ensure adaptive
tension exists