Strategic Management

1
The Wisdom of Choice
To try and fail is at least to learn; to fail to try is to
suffer the inestimable loss of what might have been.

Chester Barnard
(former CEO of New Jersey Bell Telephone)

The Functions of the Executive
ChapterCase 1
The Premature Death of a Google Forerunner at Microsoft
Google founded in 1998
Two graduate students at Stanford Sergey
Brin and Larry Page
PageRank algorithm a clear improvement
Today, it is worlds leading online search/advertising firm

Microsoft bought LinkExchange in 1998
Keywords product for search engines; but shut down in 2000

Microsoft considered buying Overture Services in 2003
Gates and Ballmer passed on the deal
Yahoo buys Overture -- an innovator in internet
services/advertising -- for its own search product
for $1.6 billion

Microsoft launches its own search in 2009
Bing now strategically partnered with Yahoo

13
What Strategy is: Gaining and Sustaining
Competitive Advantage
What is Competitive Advantage?

Superior performance relative to competitors
Examples: Google, Pfizers Lipitor (patent
protection to 2010)

What is Sustainable Competitive Advantage?

Sustainable competitive advantage occurs when a firm
implements a value-creating strategy of which other companies
are unable to duplicate the benefits or find it
too costly to imitate.

An important basis for sustainable competitive advantage
is the development of resources and capabilities.

What Strategy is: Gaining and Sustaining
Competitive Advantage
What is Strategy?

Goal-directed actions to gain & sustain competitive advantage

It is not a zero-sum game
Win win scenarios co-opetition (i.e., collaborative
efforts among competitors for mutual gain)

Requires trade-offs for strategic positioning
(low cost) JCPenney vs. (upscale) Neiman Marcus
(low cost) Southwest Airlines vs. (stuck in the middle) Delta
Song

Definitions of Strategy
"The term 'strategy' is intended to focus on the
interdependence of the adversaries decisions and
on their expectations about each others behavior.
(Thomas Schelling The Strategy of Conflict)

Strategy can be defined as the 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 those goals.
(Alfred D. Chandler Strategy and Structure)

Strategy is: The pattern or plan that integrates an
organizations major goals, policies, and action
sequences into a cohesive whole. A well formulated
strategy helps to marshal and allocate an organizations
resources into a unique and viable posture based on its
relative internal competencies and shortcomings,
anticipated changes in the environment, and contingent
moves by intelligent opponents. (James Brian Quinn,
Logical Incrementalism)
16
What is Strategy?

Plan, a "how," a means of getting from here to there.
Pattern in actions over time; for example, a company
that regularly markets very expensive products is using
a "high end strategy.
Position; that is, it reflects decisions to offer particular
products or services in particular markets.
Perspective, that is, vision and direction.
Henry Mintzberg, (1994)
The Rise and Fall of Strategic Planning

Strategy as a Theory of How to Compete
Provides a Manager's Roadmap

The strategic management process is a cycle of
analysis, formulation, implementation, and
feedback.

Apple Newton flops in 1993
PalmPilot (Jeff Hawkins) learned from Apple
Newtons mistakes
iPhone a huge success in 2009
Wal-mart' (Sam Waltons) assumptions about low
costs, low prices, and high volume to drive
profitability
Auto industry differences between U.S. and Japan

EXHIBIT 1.2 What is Strategy?
Definition: Strategy is the quest to create, capture, and
sustain competitive advantage.

It is the managers theories/maps about how to gain and
sustain competitive advantage.

It is about being different from your rivals.

It is about creating value while containing cost.

It is about deciding what to do, and what not to do.

It combines a set of activities to stake out a unique position.

It has alternatives, consequences, and choices involving significant
resources, typically made under some level of uncertainty.

It requires long-term commitments that are not easily reversible.
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Key Drivers of Value Creation and
Sustainable Competitive Advantage

Generating economic value can be accomplished
through:

REVENUE drivers

COST drivers

RISK drivers

110
Value and Cost Drivers
Figure 2.5
EXHIBIT 1.1 Industry, Firm, and Other Effects Explaining Superior Firm Performance
Industry vs. Firm Effects in Performance
Astute managers create superior performance
Making important trade-offs
- Toyotas lean manufacturing
112
13
Sources of Superior Profitability
RATE OF PROFIT
ABOVE THE
COMPETITIVE
LEVEL
How do we
make
money?
INDUSTRY
ATTRACTIVENESS
Which
businesses
should we be
in?
COMPETITIVE
ADVANTAGE
How should
we compete?
CORPORATE
STRATEGY
BUSINESS
STRATEGY
Strategy Across the Levels
Where to Compete?
Should GE move more
aggressively into the
health care industry?

How to Compete?
Should GE jet engines
have better fuel efficiency
than Rolls Royce?

How to Implement?
Should GE human
resources recruit more
science graduates?
CORPORATE
STRATEGY



BUSINESS
STRATEGY



FUNCTIONAL
STRATEGY
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Levels of Strategy
Corporate Level: Typically involves decision-making by
the top management team that includes the CEO, senior
executives, the board of directors, and the corporate staff.
Decisions include vertical integration, diversification, strategic
alliances, acquisitions, new ventures, and restructuring.

Business Level: Includes the strategic choice of generic
strategy (cost leadership, differentiation, focus) and the
benefits and costs of first-mover advantages. Often an
enterprise participating in multiple businesses will have
different business strategies.

Functional Level: Typically directed at improving the
effectiveness of functional operations within a company, such
as manufacturing, materials management, human resources,
marketing, R&D and operations management.
115
EXHIBIT 1.3
Strategy Formulation and Implementation Across Levels:
Corporate, Business, and Functional Strategy
Business Models
Putting Strategy into Action

"Razor-blade model" (e.g., laser printers)

Subscription model (free cell phone along
with wireless plan)

How is the firm going to make money to
continue operations?

Whats happening now between Microsoft and
Google?

Business models in opposite directions
117
EXHIBIT 1.4
Competing Business Models: Google vs. Microsoft
Multi-point Competition
Microsoft
Google
Software
Apps
Online
Search
Operating
Systems
118
What is Strategy?
Some Fundamental Questions
Related to Mission & Vision
Who are we?
What do we do?
Why are we here?
What kind of company are we?
What kind of company do we want to become?
What kind of company must we become?

What is Strategy?
Related to Corporate Strategy
What is the current strategy, implicit or explicit?
What assumptions have to hold for the current
strategy to be viable?
What is happening in the larger, social and
educational environments?
What are our growth, size, and profitability
goals?
In which markets will we compete?
In which businesses?
In which geographic areas?

What is Strategy?
Related to Competitive Strategy
What is the current strategy, implicit or explicit?
What assumptions have to hold for the current strategy to be viable?
What is happening in the industry, with our competitors, and in
general?
What are our growth, size, and profitability goals?
What products and services will we offer?
To what customers or users?
How will the selling/buying decisions be made?
How will we distribute our products and services?
What technologies will we employ?
What capabilities and capacities will we require?
Which ones are core?
What will we make, what will we buy, and what will we acquire
through alliance?
What are our options?
On what basis will we compete?

What is Strategy?
Operating the Business
Consolidating the Organizations Competitive
Position
Meeting Customers Needs & Expectations
Achieving Performance Targets
Everything We Do!
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23
Which School Does Your Organization Attend?
Design School
Planning School
Positioning School
Entrepreneurial School
Cognitive School

Learning School
Power School
Cultural School
Environmental School
Configuration School

24
25
26
27
Do We Need Strategy?
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Market Conditions
New Technology
Political Conditions
New Opportunities
New Customer Needs
C H A N G E
Why we need strategy
29
Why We Need Strategy?
30
SETS DIRECTION
DEFINES THE
ORGANIZATION
PROVIDES
CONSISTENCY
FOCUSES EFFORT
Effective Strategy Managers
Boldly Go
Emphasise out-innovating the competition
Vision/Direction Setters
Take Risks
Responsive
31
The Strategy Schools
Design School
Planning School
Positioning School
Entrepreneurial
School
Cognitive School


Learning School
Power School
Cultural School
Environmental School
Configuration School
32
(Source Minsky et al , 1998)
The Design School
The essential fit between internal
strengths and weaknesses and
external threats and opportunities
A deliberate process of
conscious thought - which is neither
formally analytical nor informally
intuitive.

33
The Design School
34
External
Appraisal

Threats &
Opportunities in
Environment

Key Success
Factors
Internal
Evaluation

Strengths &
Weaknesses of
Organization

Distinctive
Competencies
Creation of
Strategy
Social
Responsibility
Managerial
Values
Evaluation &
Choice of Strategy
(Source Minsky et al , 1998)
The Planning School

The planning school reflects most of the
design school's assumptions except a rather
significant one: that the process
was not just cerebral but
formal, decomposable.
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36
The Planning School
Fundamental
Organizational
Socio-Economic
Purpose
Values
of
Top Managers
Evaluation of External
and Internal Opportunities
and Problems; and
Company
Strengths and Weaknesses

Strategic
Planning
and Plans


Company
Missions
Long-Range
Objectives
Policies
Strategies
Short-Range
Planning and
Plans


Goals/Targets
Procedures
Tactical Plans
Programmed
Plans

Medium-Range
Programming
and Programmes


Sub-Objectives
Sub-Policies
Sub-Strategies



Organization
for
Implementation
of
Plans
Review
and
Evaluation
of
Plans
Feasibility Testing
Planning Studies
Premises Planning
Implement
and Review
(Source Steiner, 1969)
The Positioning School

Strategy depends on the
positioning of the
firm in the market and within its
industry.
37
Michael Porter
Porters Generic Strategies
38
Cost Leadership
Cost Focus

Differentiation Focus
Differentiation
Lower Cost Differentiation
Broad
Target


Narrow
Target
Competitive Advantage
C
o
m
p
e
t
i
t
i
v
e

S
c
o
p
e

(Source Porter, 1985)
The Entrepreneurial School
But unlike the design school, and
in contrast to the planning school,
it rooted that process in the
mysteries of
intuition.
39
Strategy as Seeing
40
BEHIND
AHEAD THROUGH
BELOW
BEYOND
BESIDE
(Source Minsky et al , 1998)
The Cognitive School
If strategies developed in
people's mind as frames,
models, or maps, what
could be understood
about those mental
processes?
41
Parallel Process Model
Of Strategic Decision Making
42
Strategic
Information
Shared
Meanings
Socialisation
Framed
Constructions
Roles
Decision
Organizational Level Attention Encoding Storage/Retrieval Action
Individual Level Attention Encoding Storage/Retrieval Action
Top Management Team
-- CEO
-- V P Marketing
-- V P Production
Organizational Outcome
Individual Outcome
(Source Corner, Kinicki, & Keats, 1994)
The Learning School

Strategies are emergent,
strategists can be found throughout the organization,
and so-called formulation and implementation intertwine.
43
The Learning School
44


Individual



Group


Organization



Institutionalising
Integrating
Interpreting
Intuiting
Plans/Routines/Norms
Diagnostic Systems
Rules & Procedures
Shared Understandings
Mutual Adjustment
Interactive Systems
Language
Cognitive Map
Conservation/Dialogue
Experiences
Images
Metaphors
LEVEL PROCESS INPUTS/OUTCOMES
(Source Crossan, Lane & White, 1997)
The Power School
Strategy Formation as a
Process of Negotiation
Micro-power and Macro-power.
45
The Power School
46
P
MICRO
MACRO
P
P
P
The Cultural School
Strategy formation is
viewed as a social
process rooted in
culture.
47
The Cultural School
48
The Environmental School
Strategy Formation as a Reactive
Process

The Environment is the central
actor in determining strategy

49
The Environmental School
50
THE ENVIRONMENT













The
Organization
Leadership
THE ENVIRONMENT









The
Organization
Leadership
THE ENVIRONMENT









The
Organization
Leadership
THE ENVIRONMENT









The
Organization
Leadership
THE ENVIRONMENT









The
Organization
Leadership
Only Market Survivor
The Configuration School
This school enjoys the most extensive and
integrative literature and practice at present.
One side of this school, more academic and
descriptive, sees organization as configuration -
coherent clusters of characteristics and
behaviors - and
So serves as one way to integrate the claims of the
other schools: each configuration, in effect, in its
own place, planning for example, in machine-type
organizations under conditions of relative stability,
entrepreneurship under more dynamic
configurations of start-up and turnaround.
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The Configuration School
52
TRANSFORMATION
Which School Does Your Organization Attend?
Design School
Planning School
Positioning School
Entrepreneurial School
Cognitive School

Learning School
Power School
Cultural School
Environmental School
Configuration School

53
Strategic Management
'Every strategy process has to combine various
aspects of the different schools. Can anyone
possibly imagine strategy making in any serious
organisation without mental and social aspects,
without the demands of the environment, the energy
of leadership, and the forces of organisation, without
tradeoffs between the incrementals and the
revolutionary? And can any strategy process be
realistically pursued as purely deliberate or purely
emergent? To deny learning is as silly as to deny
control.'
Conclusion
'There are categories out there,' the authors
conclude, 'but they should be used as
building blocks, or, better still, as ingredients
of a stew.'
'Every strategy process has to combine various
aspects of the different schools. Can anyone
possibly imagine strategy making in any serious
organisation without mental and social aspects,
without the demands of the environment, the energy
of leadership, and the forces of organisation, without
tradeoffs between the incrementals and the
revolutionary? And can any strategy process be
realistically pursued as purely deliberate or purely
emergent? To deny learning is as silly as to deny
control.'