Lecture L1

Introducing 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”.
This is a broad statement for the longer term and it is used to drive the details
of the specific short and long- range plans. It is the way of stating the current /
present and upcoming future position of the company, and the objective, goals,
major policies and required for taking the company from where it is to where it
wants to be.
It is a general framework that provides guidance for actions to be taken and, at
the same time is shaped by the actions taken. it is journey between Imagination
and actual make .
Characteristics of Strategic Decisions
 Long-term direction
 Scope of an organization’s activities
 Competitive advantage
 Strategic fit with business environment.
 Organization resources and competences.
 Values and expectations of power players.
The strategic decisions are likely to affect the long –term direction of an
organization. Strategy can also be seen as 'stretching' an organization's
resources and competences to create opportunities or capitalize on them. It
is not just about countering environmental threats and taking advantage
of environmental opportunities; it is also about matching organizational
 resources to these threats and opportunities. There would be little point
in trying to take advantage of some new opportunity if the resources
needed were not available or could not be made available, or if the
strategy was rooted in an inadequate resource-base.

Implications of Strategic Decisions

 Complexity
 Integration
 Relationships and networks
 Change
 Uncertainty
 Operational decisions

Levels of Strategy
☻Corporate-level strategy
☻Business-level strategy
☻Operational strategy

Level of
Definition Example
Strategy

Corporate Diversification into new product or geographic

Market definition
strategy markets

Business Attempts to secure competitive advantage in

Market navigation
strategy existing product or geographic markets

Functional Support of corporate Information systems, human resource

Level of
Definition Example
Strategy

practices, and production processes that

strategy and business
strategy facilitate achievement of corporate and
strategy
business strategy

The basic purpose of strategy is “how the organization will be different form
other organization.

Corporate-level strategies address the entire strategic scope of the enterprise.

This is the "big picture" view of the organization and includes deciding in
which product or service markets to compete and in which geographic regions
to operate. For multi-business firms, the resource allocation process—how
cash, staffing, equipment and other resources are distributed—is typically
established at the corporate level. There four it know as corporate level
strategies.

The Business level of strategy concerned with the question, “How do we

compete?” Pertains to each business unit or product line within the
organization.

The operational level of strategy concerned with the question, “How do

we support the business-level strategy?” Pertains to all of the
organization’s major departments.

What is a Strategic Business Unit?

A strategic business unit (SBU) is a part of an organization for which there is a
distinct external market for goods or services that is different from another
SBU.
A strategic business unit is a significant organization segment that is analyzed
to develop organizational strategy aimed at generating future business or
revenue.
Exactly what constitutes an SBU varies from organization to organization. In
larger organizations, an SBU could be a company division, a single product, or a
complete product line. In smaller organizations, it might be the entire
company.1 although SBUs vary drastically in form, they have some common
characteristics. All SBUs are a single business (or collection of businesses),
have their own competitors and a manager accountable for operations, and can
be independently planned.
Vocabulary of Strategy
 Mission: Identifies overall purpose of the organization. Defines the scope
and the boundary of the business. What business are we in?
 Vision or strategic intent: desired future state of the organization.
 Goal is the general aim in line with the mission may be qualitative in
nature.
 Objectives are quantifiable in nature
Vocabulary of Strategy: Nokia
 Vision/Mission.
Connecting is about helping people feel close to what matters. Wherever,
whenever, Nokia believes in communicating, sharing, and in the awesome
potential in connecting the 2 billion who do with the 4 billion who don’t.
What is Strategic Management?
Strategic management includes understanding the strategic position of a
organization, making strategic choices for the future, and managing strategy in
action.

Strategic management vs operational management

Strategic Management Operation Management

  Ambiguous/Uncertain
 Complex
 Organization wide
 Fundamental
 Long term implication
◙ Re-utilized
◙ Operationally specific
◙ Short term implication

The Exploring Corporate Strategy Model

What is Strategic Position?

Strategic position is concerned with the impact on strategy of the external

environment, an organization’s strategic capability and the expectations and
influence of stakeholders.
A strategic position statement is kind of like a statement for your company. You
want to explain this statement how you view your company and how you view
it within the rest of your marketplace.
What are Strategic Choices?

Strategic choices involve understanding the underlying bases for future

strategy at both the business unit and corporate levels and the options for
developing strategy in terms of both the directions and methods of
development.
Strategic choice is the second element of the strategy formulation process.
Choice is at the centre of strategy formulation. If there are no choices to be
made,
There can be little value in thinking about strategy at all.
This relatively modest interpretation of the word strategic mean that the view
of planning as strategic choice is one that can be applied not only to decision
making in formal organizational settings, but to the choices and uncertainties
which people face in their personal and community lives. Ex , any of us might
find Ourselves involved in a process of strategic choice in addressing the
problem of Where and when to go on holiday next year, or how to sell an
unwanted vehicle, or how to deal with a difficult request from a relative or
friend . of course, the craft of choosing strategically becomes more complicated
where it involves elements of collective choice – of negotiation with others
who view problems and possibilities in different ways.
What is Strategy in Action?
Strategy in action is concerned with ensuring that strategies are
working in practice.
Most organizations have a strategy. Many strategies fail. Why? Strategies are
seldom implemented properly because a suitable framework is missing – an
architecture that reaches from strategy conception to strategy implementation
and sustainability.

Lecture 2
Strategy Making and strategy Execution Process
Strategists are CEO, Top Management team and practicing managers

Characteristics of Effective Strategy Leaders

• Mastery of analytical concepts and techniques
• Social and influencing skills
• Group acceptance as a player
What is a Strategic Planner?
What is a Strategic Planner?
Tasks performed by strategic planners
Information and analysis, devising the strategy process and working on
special projects
Roles Played by
Strategy Consultants
 Analysing, prioritising,
and generating options
Transferring knowledge

Promoting strategic decisions

Implementing strategic change

Lecture 3
Henry Mintzberg (1998) suggests that authors on strategy characterise its meaning in one
or more of the following 5 ways

1. A Ploy

2. A Position

3. A Perspective

4. A Plan

5. A Pattern

Kevin Hinde. EC490 Corporate and Strategic Management Division of Economics,

University of Northumbria 17

The first two are concerned quite openly with the issue of competitive strategy. Ploy refers
to outwitting a rival. Position is about how an organisation places itself in the market. Both
are concerned with obtaining a competitive advantage through the existence of core
competence.

The view that strategy is a perspective identifies with those organisations where there is a
powerful group of strategy makers. It is their whims, predilections and personality that
influence organisational direction. This, of course, raises an issue about whether such
views reflect an organisational consensus.
Most organisations have a strategic plan - a consciously intended course of action, general
or specific. However, Mintzberg (1990), as you will note later, is very critical of what he
calls the Design School of strategic management. He implies that this approach relies
heavily on a group of decision-makers (strategy as a perspective) and that the formulation
of strategy is detached from its implementation. He asks how such organisations can
venture into new markets. What is required is ‘crafting’, which is in marked contrast to
planning.

“Craft invokes traditional skill, dedication, perfection, mastery through

detail. What springs to mind is not so much thinking and reason as
involvement, a feeling of intimacy and harmony with the materials at hand,
developed through long experience and commitment. Formulation and
implementation merge into a fluid process of learning through which
creative strategies emerge.” (Mintzberg (1987) p.66).

Interestingly, Mintzberg identifies strategy as a pattern because planners may justify what
they have done even though it did not follow from the original plan. After having taken
action, we reflect on what we have done and define it as a consistent pattern - whether or
not it was intended. Because we "see" a pattern what we do is ascribe it as being
intentional strategy - "the pattern stems from our plan!"

However, there has been no overseeing intention. Some plans may never be implemented
or see the light of day. In the same way, a pattern of actions may arise without
preconceived, integrative planning. Indeed, they can arise through the political, cultural
and social forces that operate within and upon the organisation.

Mintzberg identifies with two sorts of strategy – deliberate and emergent.

�A deliberate strategy is an intended plan that is then realised (or otherwise).

�An emergent strategy arises from other sources, usually political and cultural or
through imposition (possibly by an event over which the organisation has no control).

Lecture 4
Strategic Position – Strategic position of the company can be understood by
studying the Environment, Strategic capability , purpose of the organisation
and the Culture of the organization .
Environment
Business Environment consists of the following structure

 MacroEnvironment

 Industry/Sector

 Competitors

 Organisation
Macro environment can be studied by the PESTEL framework, Key Drivers
and The Scenarios
Pestel Framework includes

 Political Environment-govt policies, regulations

 Economic- Related with economic monitory, fiscal policies

 Social- cultural and social practices

 Technological-

 Environmental- Natural resources

 Legal- Legal laws

Key drivers for change are environmental factors that are likely to have a high
impact on the success or failure of strategy. We chose those elements in the
pestel framework which have high impact. Those are the key drivers.
Scenarios are detailed and plausible views of how the business environment
of an organisation might develop in the future based on key drivers for change
about which there is a high level of uncertainty.
Scenario 1 –what is the effect and strategy if it rains
Scenario 2 – what is the effect and strategy if it does not rains.
We chose the key drivers and construct the scenarios for them and then
develop our strategy
Industry and Sectors
To study the environment of industry and sector we need to study the
competitive forces, Industry life cycle and competing cycles.
Competitive Forces

Porter explains that there are five forces that determine industry attractiveness and long-
run industry profitability. These five "competitive forces" are

- The threat of entry of new competitors (new entrants)

- The threat of substitutes
- The bargaining power of buyers
- The bargaining power of suppliers
- The degree of rivalry between existing competitors
Threat of New Entrants

New entrants to an industry can raise the level of competition, thereby reducing its
attractiveness. The threat of new entrants largely depends on the barriers to entry. High
entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are
very easy to enter (e.g. estate agency, restaurants). Key barriers to entry include

- Economies of scale
- Capital / investment requirements
- Customer switching costs
- Access to industry distribution channels
- The likelihood of retaliation from existing industry players.

Threat of Substitutes

The presence of substitute products can lower industry attractiveness and profitability
because they limit price levels. The threat of substitute products depends on:

- Buyers' willingness to substitute

- The relative price and performance of substitutes
- The costs of switching to substitutes

Bargaining Power of Suppliers

Suppliers are the businesses that supply materials & other products into the industry.

The cost of items bought from suppliers (e.g. raw materials, components) can have a
significant impact on a company's profitability. If suppliers have high bargaining power
over a company, then in theory the company's industry is less attractive. The bargaining
power of suppliers will be high when:

- There are many buyers and few dominant suppliers

- There are undifferentiated, highly valued products
- Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers
threatening to set up their own retail outlets)
- Buyers do not threaten to integrate backwards into supply
- The industry is not a key customer group to the suppliers

Bargaining Power of Buyers

Buyers are the people / organisations who create demand in an industry

The bargaining power of buyers is greater when

- There are few dominant buyers and many sellers in the industry
- Products are standardised
- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyer's industry
- The industry is not a key supplying group for buyers

Intensity of Rivalry

The intensity of rivalry between competitors in an industry will depend on:

- The structure of competition - for example, rivalry is more intense where there are
many small or equally sized competitors; rivalry is less when an industry has a clear
market leader

- The structure of industry costs - for example, industries with high fixed costs
encourage competitors to fill unused capacity by price cutting

- Degree of differentiation - industries where products are commodities (e.g. steel, coal)
have greater rivalry; industries where competitors can differentiate their products have
less rivalry

- Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is
a significant cost associated with the decision to buy a product from an alternative
supplier

- Strategic objectives - when competitors are pursuing aggressive growth strategies,

rivalry is more intense. Where competitors are "milking" profits in a mature industry, the
degree of rivalry is less

- Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing
down factories) - then competitors tend to exhibit greater rivalry.

Industry Life Cycle

Cycle of competition

In the Competitor Environment we study the strategic groups, market segments and
the strategic customers

Strategic groups are organisations within an industry with similar strategic

characteristics, following similar strategies or competing on similar bases.
Characteristics for Identifying Strategic Groups- strategic group differs on this basis

Scope of activities

 Extent of product diversity

 Extent of geographic coverage
 Number of segments served
 Distribution channels

Benefits of Identifying Strategic Groups

 Understanding competition
 Understanding competition
 Analysis of mobility barriers

A market segment is a group of customers who have similar needs that are different from
customer needs in other parts of the market.

Bases Of Market Segmentation

A strategic customer is the person(s) at whom the strategy is primarily addressed because
they have the most influence over which goods or services are purchased.
A strategic customer is the person(s) at whom the strategy is primarily addressed because
they have the most influence over which goods or services are purchased.

 A strategic Gap is an opportunity in the competitive environment that is not fully

exploited by competitors

To understand the environment of the Organisation the companies goes for the
SWOT analysis

SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats

SWOT analysis is an important tool for auditing the overall strategic position of a business
and its environment.

Once key strategic issues have been identified, they feed into business objectives,
particularly marketing objectives. SWOT analysis can be used in conjunction with other
tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. It is
also a very popular tool with business and marketing students because it is quick and easy
to learn.

The Key Distinction - Internal and External Issues

Strengths and weaknesses are Internal factors. For example, a strength could be your
specialist marketing expertise. A weakness could be the lack of a new product.

Opportunities and threats are external factors. For example, an opportunity could be a
developing distribution channel such as the Internet, or changing consumer lifestyles that
potentially increase demand for a company's products. A threat could be a new competitor
in an important existing market or a technological change that makes existing products
potentially obsolete.

it is worth pointing out that SWOT analysis can be very subjective - two people rarely
come-up with the same version of a SWOT analysis even when given the same information
about the same business and its environment. Accordingly, SWOT analysis is best used as a
guide and not a prescription. Adding and weighting criteria to each factor increases the
validity of the analysis.

Areas to Consider

Some of the key areas to consider when identifying and evaluating Strengths, Weaknesses,
Opportunities and Threats are listed in the example SWOT analysis below:
Lecture -5

Strategic capability refers to the resources and competences of an organisation

needed for it to survive and prosper
The idea is to convert the threshold resources to the unique resources and the
threshold competencies to the Core competence

Tangible resources are physical assets of an organisation such as plant, labour, and
finance.

Intangible resources are non-physical assets such as information, reputation, and

knowledge.

Resources are physical, financial, human and intellectual resources

Core competences are the skills and abilities by which resources are deployed
through an organisation’s activities and processes such as to achieve competitive
advantage in ways that others cannot imitate or obtain.

How can we achieve cost efficiency

 By economies of scale
 By enhancing product design
 reducing the supply cost
 By experience

Economies of scale: production level should be such so as to meet the cost of the
plant setup, capacity and resources which is very high.

Supply cost is influenced by location, ownership of raw material, etc.

 Competences in activities develop over time based on experience, resulting in

cost efficiencies
 Growth may not be optional
 Unit costs should decline year on year
 First mover advantage is important

Core Competences Lead to Competitive Advantage When…

 They relate to an activity that underpins the value in the product features
 They lead to levels of performance that are significantly better than
competitors
 They are difficult for competitors to imitate

Dynamic capabilities are an organisation’s abilities to renew and recreate its

strategic capabilities to meet the needs of a changing environment.

Organisational knowledge is the collective experience accumulated through

systems, routines, and activities of sharing across the organisation.
Strategic Capability of the company can be found out by

1. Value Chain / Networks

2. Activity maps
3. Benchmarking
4. SWOT analysis

A value chain describes the categories of activities within and around an

organisation, which together create a product or service.

Value Chain Analysis describes the activities that take place in a business and relates them
to an analysis of the competitive strength of the business. Influential work by Michael
Porter suggested that the activities of a business could be grouped under two headings:

(1) Primary Activities - those that are directly concerned with creating and delivering a
product (e.g. component assembly); and
(2) Support Activities, which whilst they are not directly involved in production, may
increase effectiveness or efficiency (e.g. human resource management). It is rare for a
business to undertake all primary and support activities.

Value Chain Analysis is one way of identifying which activities are best undertaken by a
business and which are best provided by others ("out sourced").

Linking Value Chain Analysis to Competitive Advantage

What activities a business undertakes is directly linked to achieving competitive

advantage. For example, a business which wishes to outperform its competitors through
differentiating itself through higher quality will have to perform its value chain activities
better than the opposition. By contrast, a strategy based on seeking cost leadership will
require a reduction in the costs associated with the value chain activities, or a reduction in
the total amount of resources used.

Primary Activities

Primary value chain activities include:

Primary Description
Activity
Inbound All those activities concerned with receiving and storing externally
logistics sourced materials
Operations The manufacture of products and services - the way in which resource
inputs (e.g. materials) are converted to outputs (e.g. products)
Outbound All those activities associated with getting finished goods and services to
logistics buyers
Marketing and Essentially an information activity - informing buyers and consumers
sales about products and services (benefits, use, price etc.)
Service All those activities associated with maintaining product performance after
the product has been sold

Support Activities

Support activities include:

Secondary Description
Activity
Procurement This concerns how resources are acquired for a business (e.g. sourcing
and negotiating with materials suppliers)
Human Those activities concerned with recruiting, developing, motivating and
Resource rewarding the workforce of a business
Management
Technology Activities concerned with managing information processing and the
Development development and protection of "knowledge" in a business
Infrastructure Concerned with a wide range of support systems and functions such as
finance, planning, quality control and general senior management

Steps in Value Chain Analysis

Value chain analysis can be broken down into a three sequential steps:

(1) Break down a market/organisation into its key activities under each of the major
headings in the model;

(2) Assess the potential for adding value via cost advantage or differentiation, or identify
current activities where a business appears to be at a competitive disadvantage;

(3) Determine strategies built around focusing on activities where competitive advantage
can be sustained

A value network is the set of interorganisational links and relationships that are
necessary to create a product or service.

Activity Maps

 It shows how the different activities of an organisation are linked together. .

 It can be developed by using network diagrams or by using computer
programs.

BenchMarking

Benchmarking is the process of identifying "best practice" in relation to both products

(including) and the processes by which those products are created and delivered. The
search for "best practice" can taker place both inside a particular industry, and also in
other industries (for example - are there lessons to be learned from other industries?).

The objective of benchmarking is to understand and evaluate the current position of a

business or organisation in relation to "best practice" and to identify areas and means of
performance improvement.

The Benchmarking Process

Benchmarking involves looking outward (outside a particular business, organisation,

industry, region or country) to examine how others achieve their performance levels and
to understand the processes they use. In this way benchmarking helps explain the
processes behind excellent performance. When the lessons learnt from a benchmarking
exercise are applied appropriately, they facilitate improved performance in critical
functions within an organisation or in key areas of the business environment.

Application of benchmarking involves four key steps:

(1) Understand in detail existing business processes

(2) Analyse the business processes of others

(3) Compare own business performance with that of others analysed

(4) Implement the steps necessary to close the performance gap

Benchmarking should not be considered a one-off exercise. To be effective, it must become

an ongoing, integral part of an ongoing improvement process with the goal of keeping
abreast of ever-improving best practice.

Types of Benchmarking

There are a number of different types of benchmarking, as summarised below:

Type Description Most Appropriate for the

Following Purposes

Strategic Where businesses need to improve overall - Re-aligning business

Benchmarking performance by examining the long-term strategies that have
strategies and general approaches that have become inappropriate
enabled high-performers to succeed. It
involves considering high level aspects such
as core competencies, developing new
products and services and improving
 capabilities for dealing with changes in the
external environment. Changes resulting
from this type of benchmarking may be
difficult to implement and take a long time to
materialise

Performance or Businesses consider their position in _ Assessing relative level

Competitive relation to performance characteristics of of performance in key
Benchmarking key products and services. Benchmarking areas or activities in
partners are drawn from the same sector. comparison with others in
This type of analysis is often undertaken the same sector and
through trade associations or third parties to finding ways of closing
protect confidentiality. gaps in performance

Process Focuses on improving specific critical - Achieving improvements

Benchmarking processes and operations. Benchmarking in key processes to obtain
partners are sought from best practice quick benefits
organisations that perform similar work or
deliver similar services. Process
benchmarking invariably involves producing
process maps to facilitate comparison and
analysis. This type of benchmarking often
results in short term benefits.

Functional Businesses look to benchmark with partners - Improving activities or

Benchmarking drawn from different business sectors or services for which
areas of activity to find ways of improving counterparts do not exist.
similar functions or work processes. This
sort of benchmarking can lead to innovation
and dramatic improvements.
 involves benchmarking businesses or - Several business units
Internal operations from within the same within the same
Benchmarking
organisation (e.g. business units in different organisation exemplify
countries). The main advantages of internal good practice and
benchmarking are that access to sensitive management want to
data and information is easier; standardised spread this expertise
data is often readily available; and, usually quickly, throughout the
less time and resources are needed. There organisation
may be fewer barriers to implementation as
practices may be relatively easy to transfer
across the same organisation. However, real
innovation may be lacking and best in class
performance is more likely to be found
through external benchmarking.

External involves analysing outside organisations that - Where examples of good

Benchmarking are known to be best in class. External practices can be found in
benchmarking provides opportunities of other organisations and
learning from those who are at the "leading there is a lack of good
edge". This type of benchmarking can take practices within internal
up significant time and resource to ensure business units
the comparability of data and information,
the credibility of the findings and the
development of sound recommendations.

International Best practitioners are identified and - Where the aim is to

Benchmarking analysed elsewhere in the world, perhaps achieve world class status
because there are too few benchmarking or simply because there
partners within the same country to produce are insufficient"national"
valid results. Globalisation and advances in businesses against which
information technology are increasing to benchmark.
opportunities for international projects.
However, these can take more time and
resources to set up and implement and the
results may need careful analysis due to
national differences
SWOT: Discussed earlier