Business Strategy

The Nature of Business Strategy

Instructor: Dr Bilal Ahmed

Assistant Professor
The Purpose

How to develop a clear

strategic plan—a bridge to
somewhere rather than
nowhere.
 Outlines
• Defining Business Strategy
• Strategic Management vs Strategic Planning
• Stages of Business Strategy
• Key Terms in Business Strategy
• The Business Strategy Model
• Benefits of Business Strategy
• Pitfalls in Strategic Planning
• Guidelines for Effective Business Strategy
 What is strategy?
• A plan of action designed to achieve a long-term or
overall aim.
• Where there is organization, there is strategy.
 What Is Business Strategy?
• A company’s game plan.
• The art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an
organization to achieve its objectives.
Scope
• Integrating management
• Marketing
• Finance
• Production
• Research And Development
• Information systems etc.
 Strategic Management vs.
Planning
“Strategic Management”
Synonymous with
“Strategic Planning”

• Strategic management
Used more often in academia

• Strategic planning
Used more often in the business world
 Strategic Management

Strategy Implem Evaluati

Business enta-
formulat on
Strategy tion
ion
Strategic Planning

Strategy
Strategic
formulati
Planning
on
Stages of Business Strategy
Strategy formulation
• Developing a vision and mission
• Identifying an organization’s external opportunities
and threats
• Determining internal strengths and weaknesses
• Establishing long-term objectives
• Generating alternative strategies
• Choosing particular strategies to pursue.
Stages of Business Strategy
Implementation (Action Stage)
• Developing a strategy-supportive culture,
• Creating an effective organizational structure,
• Redirecting marketing efforts,
• Preparing budgets,
• Developing and utilizing information systems
• Linking employee compensation to organizational
performance.
Stages of Business Strategy
Evaluation
• Reviewing external and internal factors that are the
bases for current strategies.
• Measuring performance
• Taking corrective actions.
 The purpose of Business
Strategy
• Exploit and create new and different opportunities
• Long-range planning
• Optimize for tomorrow
Key Terms in Business Strategy
Competitive Advantage
• Anything that a firm does especially well compared to
rival firms.
 Normally, a firm can sustain a competitive advantage for
only a certain period.
Key Terms in Business Strategy
Strategists
• Individuals who are most responsible for the
success or failure of an organization.
help an organization gather, analyze, and organize
information.
Track industry and competitive trends.
Develop forecasting models and scenario analyses.
Evaluate corporate and divisional performance.
Spot emerging market opportunities.
Identify business threats
Develop creative action plans.
Key Terms in Business Strategy
Vision Statement
• What do we want to become?
 First step in strategic planning.
Key Terms in Business Strategy
Mission Statement
• Enduring statements of purpose that distinguish one
firm from other similar firms.
• Identifies the scope of a firm’s operations in product
and market terms.
• Describes the values and priorities of an organization.
Key Terms in Business Strategy
External Opportunities and Threats
• significantly benefit or harm an organization in
the future.
 Political
 Economic
 Social
 Technological
 Legal
 Cultural
 Environmental
 Demographic
 Competitive trends and events
Key Terms in Business Strategy
Internal Strengths and Weaknesses
• Controllable activities that are performed especially
well or poorly.
• determined relative to competitors.
 Management
 Marketing
 Finance
 Production
 Operations
 Research and development, and
 Management information systems activities
Key Terms in Business Strategy
Long-Term Objectives
• Specific results that an organization seeks to achieve
in pursuing its basic mission.
• More than one year.
• Should be challenging, measurable, consistent,
reasonable, and clear.
Key Terms in Business Strategy
Strategies
• Potential actions that require top management
decisions and large amounts of firm’s resources.

Mechanisms by which long-term

objectives are realized
 Geographic expansion
 Diversification
 Acquisition
 Product development
Key Terms in Business Strategy
Annual Objectives
• Annual or short-term milestones necessary to achieve
long-term objectives.
 Represent the basis for allocating resources
 Established at corporate, divisional, and functional levels
Key Terms in Business Strategy
Policies
• Important in strategy implementation as the means by
which annual objectives will be achieved.
 Guide to decision making and address repetitive situations.
 Established at corporate, divisional, or functional levels.
 Allow consistency & coordination within and between
organizational departments.
Benefits of Business Strategy
Financial Benefits
• More profitable and successful
• Improvements in sales, profitability, and productivity
• High-Performing Firms
 Systematic planning
 Fluctuations in external and internal environments
Benefits of Business Strategy
(Cont’d)
Nonfinancial Benefits
• Enhanced awareness of external threats
• Understanding of competitors’ strategies
• Increased employee productivity
• Reduced resistance to change
• Clear performance-reward relationships
• Order and discipline to the firm
• View change as opportunity
Comprehensive Business Strategy Model
Ch 10: Comprehensive Strategic Management Model

External
Audit

Chapter 3

Vision Generate, Implement Implement

Long-Term
& Evaluate, Strategies: Measure &
Objectives Strategies:
Mission Select Mgmt Issues Evaluate
Marketing,
Statements Strategies Performance
Fin/Acct,
R&D, CIS
Chapter 2 Chapter 5 Chapter 6 Chapter 7 Chapter 9
Chapter 8

Internal
Audit

Chapter 4

Ch 11: Chapter 11: Global/International Issues

 Benefits of Business Strategy

DEEPER GREATER
ENHANCED UNDERSTANDING COMMITMENT THE RESULT
COMMUNICATI a. Of others’ a. To achieve All Managers
ON views objectives and Employees
a. Dialogue b. Of what the b. To implement on a Mission to
firm is strategies Help the Firm
b. Participation doing/planning Succeed
and why c. To work hard
 Pitfalls to Avoid in Strategic
Planning
• Using to gain control over decisions & resources
• Doing only to satisfy regulatory requirements
• Moving hastily from mission to strategy formulation
• Failing to communicate to employees
• Intuitive decisions that conflict with formal plan
• Top management not supportive of process
 Pitfalls to Avoid in Strategic
Planning (Cont’d)
• Failing to use as standard for performance measurement
• Delegating to a “planner” vs. involvement of managers
• Failing to involve key personnel
• Failing to create collaborative environment
• Formality that stifles creativity and flexibility
 Challenges to Business
Strategy
• To reach the economies of scale
• Achieve the low cost
 Low prices
• Need to be competitive
• Long term competitive advantages
Selling goods and services beyond national
boundaries.
 Strategic Decision Making
• Strategic Decision Making _ core characteristic of
strategic management
• For long-run future.
• Rare: unusual and typically have no precedent to follow.
• Consequential: commit substantial resources & demand
greater commitment.
• Directive: Lesser decisions and future actions.
 Mintzberg’s Model of Strategic
Decision Making
Entrepreneurial Mode/Planning Mode
• Strategy is made by one powerful individual.
• Early stage in a firm's development.
• Focus is opportunities _ problems are secondary.
• Large and bold decisions.
• Systemic gathering of appropriate information for
situation analysis.
• Alternative strategies and rational choice.
• Both proactive and reactive.
• Example: amazon.com by Jeff Bezos.
• Bezos’ vision to market book through internet etc.
 Mintzberg’s Model of Strategic
Decision Making
Adaptive Mode/Muddling Through
• Reactive solutions to existing problems.
• Strategy is fragmented and is developed to move a
corporation forward incrementally.
• For instance: Universities, Large hospitals, government
agencies etc.
 Strategic Decision Making
addition by James Quinn
Logical Incrementalism
• Synthesis of planning, adaptive and entrepreneurial
modes.
• Clear idea about mission and objectives.
• Interactive approach to probe for future.
• Experiments and learns from partial commitments.
• Useful in fluctuating environment.
• Useful when need resources before decision.
 Why Some Firms Do No
Strategic Planning
Some firms do not engage in strategic planning.
Some firms do strategic planning but receive no support from
managers and employees.
Some reasons for poor or no strategic planning are as follows:
• Lack of knowledge or experience in strategic planning
• Poor reward structures
• Firefighting
 Emergency allocation of resources, required to deal with an unforeseen problem.
 An organization can be so deeply embroiled in resolving crises and firefighting
that it reserves no time for planning.
• Waste of time
 Just investment and no marketable product
• Too expensive
 Some organizations see planning as too expensive in time and money.
 Why Some Firms Do No
Strategic Planning
• Laziness
 People may not want to put forth the effort needed to formulate a plan.
• Content with success
 Particularly if a firm is successful, individuals may feel there is no need to plan
because things are fine as they stand. But success today does not guarantee
success tomorrow.
• Fear of failure
 By not taking action, there is little risk of failure unless a problem is urgent and
pressing.
• Overconfidence
 Rely on Experience instead of plan
• Prior bad experience
– People may have had a previous bad experience with planning, that is, cases in
which plans have been long, cumbersome, impractical, or inflexible.
 Why Some Firms Do No
Strategic Planning
• Self-interest
– Status, self-esteem and privilege through old system — new plan as a threat.
• Fear of the unknown
– Skills and abilities are suspicious
• Suspicion
– Employees may not trust management.
• Honest difference of opinion
– Employees may sincerely believe the plan is wrong.
– They may view the situation from a different viewpoint.
– They may have aspirations for themselves or the organization that are different
from the plan.
– Different people in different jobs have different perceptions of a situation.