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STRATEGIC MANAGEMENT

Prof. Dr. Vasilika KUME 11/26/2012

Exploring Corporate Strategy


9th Edition

Part I

Introduction

Introducing Strategy Outline


What is strategy and strategic management? Strategic priorities at corporate, business and operational level Vocabulary of strategy Exploring Corporate Strategy, Strategic management model

What is strategy?

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Strategic Management
Where we are?
Where we want to go? How we can go there?
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What the strategy is?


Sun Tzu at The Art of War says: strategy is the thinking of generals .
Roget's New Millennium Thesaurus, First Edition (v 1.2.1) says that strategy is a plan
Synonyms: action, angle, approach, artifice, blueprint*, brainchild*, craft, cunning, design, game, game plan*, gimmick, grand design, layout, maneuvering, method, plan, planning, policy, procedure, program, project, proposition, racket*, scenario, scene, scheme, setup, slant, story, subtlety, system, tactics
* = informal or slang
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A strategy guides action; it addresses how to get from where you are to where you want to be
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Picture adapted with permission from Executive Learning Group, www.elg.net

Definition of Strategy
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 stakeholder expectations.

Strategy Definition-1
A strategy is a common thread, or invisible logic keeps unique business together. Appropriate strategies lead to high economic performance.

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What makes a successful business?


Choose the right business
Create the correct strategy Design and develop correct

infrastructure Use the correct resources

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A strategy delineates a territory in which a company seeks to be unique.

Michael Porter

Mc Donalds: Firing all cylinders while preparing for the future"


2008, Mc Donald and Wal Mart were the only ones who ended the year with a profit. 2009, 32,000 restaurants in 118 countries. McDonald situation in 2003 was not so good. McDonald appeared "old" because it had not been able to respond to the changing needs and interests of clients. McDonald decided to focus on product innovation and modernization of its facilities in the country to continue geographic expansion

Mc Donalds
Gave up on the offer of products 'super size', Enriched the menu with salads and chicken products, Provided more value to its products Trained employees, Increased the number of hours of service and Redesigned its stores to better fit the demands of the youth. In this way, McDonald sought to adapt to the demands of consumers who are becoming more cautious about their spending.

McDonalds
How the example illustrates the definition of strategy on the Strategic Management subject?
Coordination of efforts and actions to create competitive advantage.

How McDonald used distinctive competencies to adapt to its environment?


Cost reduction, modernization of facilities and innovations to deliver added value to customers

Mc Donalds
In 2009 the company added McCafe service. This service, added value to products of McDonald,
By providing high quality beverage and lower prices than competitors like Starbucks.

The firm continues to modernize existing facilities and precedes an expected economic growth with the acquisition of certain real estate in Europe. So McDonald's strategic leaders are engaged in making such decisions that will increase the value of the company in the future.

Strategy-1
We see that companies make important decisions:

A Swiss manufacturer of watches cooperates with a German manufacturer of vehicles (Swach with Mercedes); A large Bank buys a movie blen nj studjo kinemaje;
A missile manufacturer set up communication empire;

Microsoft enters the mobile business;


A pen manufacturer enters the market of perfumes and razors; Coca Cola is allocated in Highway.

Why these choices?


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Strategy-2

How can we get more wise decisions?


What are techniques or methods used to analyze the bids offered to the firm?

What is the role that people play in determining the orientation of the firm? What is the relationship between rationality and intuition in these choices?
Why changes happen?

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STRATEGJI?

S = STATUS AT PRESENT T = THINK R = RELOOK A = ACT T = THINK AGAIN E = EVALUATE G = GO AHEAD Y = YET TO BE CONSIDERED

Evolution of planning process


Stages Budget/ Control
Check deviation and solve difficulties Nothing is lost, everything is transformed

Long-Term Planning
Precede growth and solve difficulties

Strategic Planning
Change of strategic orientation and capacity New trends are predicted

Strategic Management
Face surprises, strategic threats and rapid development Planning cycles do not allow coping with rapid changes Real time From 1975

Characteris tics,

Hypothesis

Past trends are repeated

Process Period

Periodic From 1900

Periodic From 1950

Periodic From 1960

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What were the strategic planning mistakes?


The mistake of anticipating
The mistake of disconnection

The mistake of formalism

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Strategy as a Subject of Study


1960s Harvard case study What would you do if you were CEO?

60/70s
1980s

Corporate planning
Adaptive processes (Quinn)

Systematised and analytical approach


Complexity and uncertainty. Influence of experience, politics, culture, history

1980s
1980s

Market positioning (Porter)


Resource based theory (Hamel, Prahalad) Firms as organisms (Eisenhardt, Stacey)

Assessing competitive forces (5 forces) and positioning


Unique resources, core competences

1990s

Innovation to deal with change

Traditional planning/ strategic


TRADITIONAL
Assumed stability The tradition-oriented Emphasis on future decisions Reactive Internal focus Effort - testing Closed process, step by step Based on the facts The efficiency-oriented

STRATEGIC
Dynamic and changeoriented Mission-oriented Vision for the future, guide for the present Proactive Action-oriented External focus Innovation-creativity Continuous process Based on the options and qualitative indicators Efficiency-oriented

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Effectiveness and Efficiency


Strategic planning focuses more on the problem of effectiveness rather than efficiency. It is more important to do the right things than things right Company Facit Company Brothers

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Why it happens that some businesses are more successful than others?
One argues as follows:

This is because in the world there are three types of people: those making changes, those who expect to occur changes those who are surprised when something happens. ......................... Where do you part?
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Lisa in the Wonderland


Can you, please, show me the way that I have to follow? Asked Lisa the Ceshire Cat.
This depends on where are you headed answers the cat. Than, it doesnt, matter to know which direction you should go says the cat.

Its necessary just to arrive SOMEWHERE adds Lisa thinking that in this way she would better explained her question.
Oh, in this case it is sure that you will do it replies the cat but you have to walk for a long period of time.

(Lewis Carrol)
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SM and terms used


Business strategists widely use terms that are used by military field. War principles can be applied in the market battle.
By focusing resources on strategic center of gravity, businessmen, as generals, can prevail.

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Heavily armed Centre

Cavalry

Cavalry

Cavalry

Heavily armed Centre

Cavalry

6000 African soldiers

6000 African soldiers

A
The position of the two armies when the battle began Cartagenas = Black Romans = grey
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Qendra e armatosur rnd

Cavalry

Kavaleria

Kavaleria

Kavaleria

6000 African Soldiers

Qendra e armatosur rnd

Kavaleria

6000 ushtar Afrikan

6000 Heavy armed centre ushtar Afrikan

African first position Pozicioni i dy ushtrive kur filloi beteja

African first position

Kartagjenasit after the Roman cavalry was Roman center surrounded = t zinj Romant = gri destroyed and two African divisions progressed
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6000 African Soldiers

Different views of strategy


Strategy: art or science?
ART STRATEGY SCIENCE

Intuits The role of the individual

Concepts

Rationality Logics, techniques

Walkman
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Examples

PC, IBM

IBM
In 1980 the growth rate of micro-ordinators sector was 70% annually. The firma that were developing fast were: Apple, Tandy, Commodore.

IBM managers decided to enter market. First PC was manufactured in August 1981. IBM, based on strategic tools entered successfully on the market in 1981, delivering 50.000 pieces. In 1985 IBM became nr1 in PC manufacturing.
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SONY
Akio Morita, Sony president, passionate about music and golf, thought to unite these two sling with a walkman
Marketing managers were against the project. With the intervention of Morita, walkman was produced without any market research. In three months he sold 30,000 products and in a year 1 million

In 1995, the market share was 30%

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Six principles of SUN TZU and the Art of Business


Six principles for managers From Mark McNeilly (Oxford Press University 1996)

Conquer your market without destroying it


"There is not a great ingenuity to win 100 victories in 100 battles. Capacity is to defeat the enemy without doing war. "

Avoid competitors strengths and attack their


weaknesses.
"Now an army should be compared with the water stream. As flowing water avoids the heights and uses low lands, as well as an army should avoid strength and attack the opponent's weaknesses. "?

Use prior knowledge and understanding to


maximize business power.
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"Know the enemy and know yourself; In 100 battles you will never be in danger

Continues

Six principles of SUN TZU

Use speed and preparation to face the


competition.
"To be prepared in advance for each event is one of the greatest virtues."

Use alliances and strategic control points of the


industry, to give "form" to competitors, and to adapt them to your will.

"Those who are masters of war bring the enemy on the


field of battle and are not brought there by him

Develop your character as a leader to maximize the potential of your employees.


"When you treat soldiers with courtesy, fairness and equity, the army will be united and will gladly serve its leaders"

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The formula for sustainable success-1


What makes a company successful?

There are studied 160 companies, for a 10-year period, 1986-1996. They resulted in four main and 2 auxiliary management practices that lead to success. Success Formula 4 +2

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The formula for sustainable success-2


Companies that were highly engaged in four main practices and in 2 of the four supportive practices, were very successful in increasing the value of the stock.
In 10 years of study, sales of these companies grew on average 415%, and the value of assets increased by 358%.

Companies that do not follow this formula, in 10 years had a 83% sales increase, and assets by 97%
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Practice 1: Design and implement a focused and clear strategy:


Design a strategy that can produce value for the customer. Design a strategy that expresses what the customers, partners and investors wish Adapt your strategy with market changes Communicate clearly the strategy to customers and stakeholders
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Practice 2: Develop and keep a perfect operational execution


Offer products and services that meet customers expectations

Delegate authority in lower levels of management, so that decisions will respond to market changes
Continuously improve productivity, at least at a rate double the industry.

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Practice 3: Develop and maintain a performance oriented culture.


Inspire managers and employees to do their best Encourage employees and managers in making decisions Motivate achievements using pay for performance. Motivate morally the successful ones. Create a satisfactory work environment

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Practice 4: Develop and maintain a flexible and flat structure


Make organization, an easy working environment. Encourage cooperation and exchange of information. Put the best people where decisions are made.

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Auxiliary practices

Support talented employees and innovation Support growth through mergers and partnerships and keep executives engaged in business

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Why organizations fail? - 1


It may seem incredible, but Henry Ford failed 5 times before he succeeded in producing cars. Although we have entered the 21st century, his famous sayings still sound true: I strongly believe that there is often more to be learned from failure then there is from success, if we but take the time to do so. Henry Ford

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Why organizations fail? - 2


Not earlier than 21 years ago, Pan American World Airways, known as Pan Am, was one of the planet's most famous airlines. Now it no longer exists. Though once a highly successful company, despite its efforts, the performance began to decline continuously. WHY ORGANIZATIONS FAIL?

Failure at the top of the pyramid

Failure to marketing and clientele Failure to financial management


Failure to structures and systems
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Why organizations fail? -3


Failure at the top of the pyramid
When an organization fails it is clear that the chief executive and other senior managers are mainly responsible. Why? Leaders may fail to establish a clear vision and direction of the organization.

Leaders may fail in the design of an effective strategy.


Leaders can fail in making critical decisions. Leaders can fail to take risk
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Strategic thinking:
Proactive Results or rely on goals Builds priorities A discipline that results in deliberate decisions and rely on information A discipline that results in consideration of the consequences

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Not strategic thinking


Reactive Results or relies in the opportunities that arising
It does not set priorities Results from spontaneous decisions Focus on short-term results and consequences

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Strategic Decisions are About


The long-term direction of the organisation

The scope of an organisations activities Gaining advantage over competitors Addressing changes in the business environment Building on resources and competences (capability)
Values and expectations of stakeholders which affect operational decisions

Strategic Decisions are Likely to :


Be complex in nature Be made in situations of uncertainty Affect operational decisions Require an integrated approach (both inside and outside an organisation) Involve considerable change

Strategic Business Unit (SBU)


A strategic business unit (SBU) is a part of an organisation for which there is a distinct external market for goods or services that is different from another SBU

Three Levels of Strategy

Top Management
S B U -s

Products/ Markets

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Three Levels of Strategy


The strategy can be perceived in three levels: corporate, business and function

Corporate Strategy
Determines in what businesses or industries will operate

Business Strategy (SBU)


Specifies how to compete and gain competitive advantage in selected industries or businesses

Functional Strategy
Each SBU has functional areas such as finance, marketing, etc.. Here are created and stored SBU's distinctive competencies
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The Vocabulary of Strategy


Mission overriding purpose

Vision/strategic intent desired future state Goal general statement of aim or purpose Objective quantification or more precise statement of goal
Strategic capability resources, activities and processes

Business model how product, service and information flow


Control monitoring of action steps
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A model of the elements of strategic management

Exhibit 1.3

Strategic Position (1)


The Organisations Environment
Political Economic Social Technological Environmental Legal Sources of Competition Opportunities and Threats

Strategic Capability of the Organisation


Resources and Competences Strengths and Weaknesses

Strategic Position (2)


Expectations and Purposes
Corporate Governance, Stakeholders, Ethics and Culture Sources of Power and Influence Communication of Purpose: Mission and Objectives

Strategic Choices
Bases of competitive advantage at business level Scope of activities at corporate level
Portfolio Market spread, e.g. international Value added by corporate parent (parenting)

Directions and methods of development


Directions: Product/Market Methods: Internal/organic, M&A, strategic alliances

Strategy into Action


Structuring the organisation Marshalling resources (people, information, finance, technology) Managing change

Five definitions of strategy (5 P-s)


Henry Mintzberg
Plan. For many of us strategy is a plan - a deliberate course of action, general or specific. Ploy. A specific plan can also be a maneuver to deceive a competitor or rival.
Pattern. Once we take the action we are able to reflect on what we have done and to turn it into a model for future action. Position. Strategy often means our position in relation to competitors and the environment in which we operate.

Perspective. The views, opinions and preferences of decision-makers are crucial to the future of the organization.

Strategy Development Routes (1)

Strategy Development Routes (3)


Intended strategy
Expression of desired strategic direction deliberately formulated or planned by managers

Unrealised strategy
Frequently strategies do not come about in practice
Plans are unworkable Environment changes Influential stakeholders do not agree with plan

Realised strategy
The strategy actually being followed by an organisation in practice

Emergent strategy
Comes about through everyday routines, activities and processes

Strategy Process

PAIN Factors

Development needs

WIN Factors

TODAY We + Environment

A
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Design strategies and actions

THE FUTURE We + Environment

The shortest route

Crossfunctional perspective of Planning


Strategic planning
Mission Objectives Strategies Portfolio Plan

Plans of functional areas arising from the strategic plan


Operational Plan Marketing Plan HR Plan Finance Plan Facilitiy Plan

Objectives Forcasting Budgetes Strategies Programs Policies


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Objectives Forcasting Budgetes Strategies Programs Policies


Figure 1-5

Objectives Forcasting Budgetes Strategies Programs Policies

Objectives Forcasting Budgetes Strategies Programs Policies

Objectives Forcasting Budgetes Strategies Programs Policies

Why planning?
Planning performs these functions
Increases profitability Improves decision making Sets objectives
Distributes resources Analyzes courses of action Reduces risk

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Why not plan?


Excuses not reasons

Things are going well We are very busy We have not enough time We do not know how to act We do not have enough information As a result of the plan to make changes The plan can criticize the actions of the past The plan may suggest additional costs that we can not afford
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The Board of Directors


The strategic management team is made up of the BOARD OF DIRECTORS AND TOP MANAGEMENT. When doing cases individually or as a team, you should put yourself in the position of an OUTSIDE CONSULTANT TO BOARD OF DIRECTORS

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Role of the Board in Strategic Management


Monitor Evaluate and influence Initiate and determine
Top Management have increased their salaries in excess of 220 times lowest salaried workers.

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Responsibilities of Top Management in Strategic Management


Provide executive leadership Manage strategic planning process
Plan, Organize, Staff, Direct Implementation, and Evaluate and Control Management

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2.17 Styles of Corporate Governance

Styles of Corporate Governance


High

Degree of Involvement By Top Management

Entrepreneurship

Partnership

management

management

Chaos

Marionette

management
Low Low

management
High

Degree of Involvement By Board of Directors

What do you want to achieve or avoid?

The answers to this question are objectives. How will you go about achieving your desire results? The answer to this you can call strategy.

William E Rothschild

Summary -1
Strategic management is important for you as an individual because you would be working in an organization and you will be rewarded according to your skills to manage strategically.
Strategic management is important to organizations because it significantly affects the performance of the organization; he helps employees know what to do and how to respond to changing situations; he helps coordinate divisions, functions and activities of the organization. However, strategic management can not solve all the problems and challenges of the organization.

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Summary -2
A strategy is a series of decisions and actions oriented towards the goal of the organization, which are in harmony with the resources and capacity of the organization and with the opportunities and threats to the environment.

Strategic management involves those decisions and actions in which members of the organization analyze the current situation; develop appropriate strategies; implement strategies; and evaluate, modify or change strategies if necessary. .

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Summary -3
Strategic management differs from other types of management because it is interdisciplinary, focusing on the external environment, internal environment and the future of the company. The process of strategic management consists of the analysis of the situation, (scanning and evaluation of internal and external environment of the organization), the formulation of strategy (design and selection of the most appropriate strategy), implementation and evaluation.

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Summary-4
In reality, the process of strategic management can not follow all the stages in the order, but all analysis should be performed.
Strategic management has its roots in military strategies, as military units seek to gain advantages over the enemy, firms seek to gain advantages over competitors. All members of the organization play a role in the process of formulating and implementing strategy
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