Origin and Development of the Term "Strategy

The term strategy
Origin in the old Greece; Derived from the word strategos (general); Appeared when Kleisthenes (508-7 B.C.), leader of the popular revolution against oligarchy supported by Sparta cists, started his reforms; Kleisthenes created 10 new tribal divisions operating as military and political sub-units of the Athens area.
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Term strategy
- continued Composite of two words: stratos army (or camped army) agein to lead Appearance of this term is connected with a growing complexity of military decisionmaking.
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Strategic Management
Term strategy
- continued Development shifts in understanding the word: Art of the leader psychological characteristics of the leader, the way he performed his role; Prickles (450 BC) managerial skills (leading, administration, speech, power, authority); Alexander the Great (Macedonian) ability to use power to defeat opposition and to create a sustained system of overall supremacy.
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Definition of strategy by Henry Mintzbergs 5 P

PLAN
PLOY
PATTERN
POSITION PERSPECTIVE
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Model of a business strategy

Aims and expectations Influence of environment Strategy
Definition of Johnson and Scholes: strategy is a focus and range of activity of a business in the long term horizon, which in the ideal case create the accordance between the business resources and the changing external environment - especially the market and customers -, so that they fulfil the expectations of those connected with the business.
Resource potential
Contents of Strategic Management

definition of the long-term direction of an organisation and taking decisions towards achievement of organisational goals; planning, allocating, organising and managing organisational resources; planning focused on solution of the relations between an organisation and the environment; harmony of all parts of organisational system of a firm focused on reaching goals; attitude of and organisation towards HOW, WHEN, WHERE and with WHOM to compete and WHY?
Conditions requiring the use of strategic management

Speed of change
Type of change
Slow Continual Local Specialised Functional Small
Fast Discontinuity International Diversified Divisional Large

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Market
Production Organisation structure Size of a business
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Ways of strategic thinking stimulation

co-operation of SBU and key operations managers in defining organisational strategy; shift of responsibility for implementing strategic plans on these managers; clear, simple (understandable) and thorough directions elaborating organisational strategy; using oral communication in suitable cases significant and effective integrator;
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Strategic thinking stimulation

- continued in written communication, relying on brief, clear announcements; use of co-operation with experts in strategy definition and implementation not only on the top management level, but also on lower levels; thorough control of results and adjusting the rewards system so, that it comprises not only fulfilment of short-term tasks, but also (or mainly) those tasks contributing to fulfilment of long-term strategic goals.
These principles should be incorporated into organisational structure.
Integrated model of the process of Strategic management (Digman)

Vision, values and expectations
Business mission
Aims, objectives
Situation analysis Opportunities and threats in the external environment Competitive forces Resources and important advantages of a company
Strategy formulation strategic alternatives evaluation and selection
Organisational culture
Strategy implementation
Strategic control
Why?
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What?
How?
Rules
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Model of the management process by Johnson and Scholes

External environmen t
Aims, expectations , power Resources and strategic possibilities
Defining strategic possibilities
Strategic analysis Strategy formulation and selection Strategy implementatio n
Planning and resource allocation
Evaluation of possibilities Strategy selection
Organisatio nal structure

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Complexity of strategic management

Successful SM does not rely solely on explicit rational decision processes. It also requires intuitive and creative sensing about possible future events, based on a variety of information sources. Changing industry, market, and competitive forces often lead to changes and refinements in strategic plans, so that flexibility and adaptability are important in strategic management. Enterprise-wide strategies are not always stated explicitly or formulated in a formal way; in addition, they are often formulated over time.
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Complexity of SM
-continued Business organisations are dynamic entities, whose individual characteristics affect how strategic planning is done and how strategic plans are carried out in various company situations during different time periods. Ultimately, SM can vary from situation to situation and so is best understood within a situational management context. Effective SM depends on oral communications and the organisational behavioural skills of the company executives as much as it does on any written documents or organisational structures.
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Complexity of SM
-continued Information sources and flows are becoming more varied and complex, as available technology becomes increasingly accessible to non-technical business managers and as the business environment becomes more competitive. This increases the need for some knowledge of information systems technology to do strategic management effectively. Carrying out strategies through effective leadership, reengineering of business processes and organisation structures, and staffing that creates an enabling context which promotes strategic thinking can be as important to success as formulating effective strategies.
Conclusion
SM then is not a simple set of procedures that can be mastered fully in an 11-to-15-week course. It is a complex management decisionmaking and human resource management process. In addition, since it deals with the future, the process will necessarily yield uncertain recommendations at the time decisions are made.
Vocabulary of Strategic Management

Mission - general reason of existence of organisation, which complies with values and expectations of the members of the main interest groups and with the size and constraints of organisation (Example: To be healthy and in form). Strategic intent - requested state of organisation in the future (To run the Prague marathon). Objective - general intention in harmony with mission, usually qualitative (To loose weight and strengthen muscles). Plan - quantified or at least more clearly defined intent (To loose 5kg before the 1st November and run the next years marathon).

- continued Key qualifications - base on which organisation builds the strategic advantages which differentiate it from its competitors and provide value to customers (Distance to the fitness centre, family and friends support, previous experience with a successful diet). Strategy - long term direction of organisation (To become a member of a runners/athlete club, regularly practice, participate in local marathons, follow the right regimen). Strategic architecture - combination of processes, resources and abilities, which transfer strategy into life (Accurate regime of practising, diet, proper equipment of the fitness centre, etc.).

- continued Strategic control - monitoring the rate of fulfilment of objectives and intents aimed on measuring the effectiveness of strategies and activities, possibly changing the strategy and activities if necessary (To monitor the weight, kilometres run, and reached times: if the progress is satisfactory, then continue, otherwise to consider other strategic possibilities).
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Views of Strategic Management

Rational planning: sequence of steps - defining objectives, environmental analysis, evaluation of options, planning strategy implementation. Crafting/logical incrementalism: processes through which strategies are created based on the experience of managers and their sense for changes in the environment, and what they have learned during operating on their market it is not a highly formalised procedure as in planning view.

- continued Theory of chaos/complexity: environment where organisation operates is highly complex and unpredictable, nobody can estimate its specific influences on an organisation, but experience with particular environment can help in recognising models of complexity and uncertainty causation. When some variations from these patterns appear, it is possible to intuitively sense them strategic management is therefore more a question of building qualifications towards intuitiveness and acting on its base.

- continued Institutional view: managers think that they have more choice in developing strategies, than it is in reality - organisations exist in relation to other similar organisations - the similarity develops in time in coherence with how organisations are viewed by their employees regarding the environment, customers, suppliers, competitors, etc. Also the way of doing things is similar strategies are created within institutionally similar cultural parameters.

- continued Ecological view: organisations build ways of doing things, but the success of an organisation is based on the rate of their coherence with the needs of the environment - it is about the natural selection
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- continued Planning view - managers have the opportunity to do significant changes in strategy.
Other views - strategies develop in organisations gradually, by adapting or using current strategies. Crafts view - it is possible to do it proactively. Institutional view - it is not proactivity, but the result of the fact that strategies are limited by institutional culture. Ecological view - gradual development is unavoidable, and in time it will result in decline, or demise of most organisations.
Business mission
Defines why does a company exist: Who we are, what do we do, where do we want to go. Two views: School of strategy - strategic tool, which defines commercial goals and market of a company, first step in SM.
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Business mission
-continued Mission = cultural glue, which enables an organisation to operate as a unified body - rather a set of values than a description of basic commercial goals. So the mission: expresses a general value of the culture, which determines how people in the firm think and behave, and what kind of people the firm employs; eliminates initiatives, ideas and employees, that are not in consistence with these values; hedges the firms ability to formulate valuable strategies because a mission can become obsolete.
Business mission
-continued4 conditions of an effective formulation of a business mission: 1. Market orientation 2. Possibility to realise 3. Motivation 4. Specification
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Formulation of a business mission by answering questions

1. CUSTOMERS. Who are the customers of the firm? 2. PRODUCT OR SERVICE. Which are the basic products/services of a firm? 3. MARKET. On which market does the firm compete?
4. TECHNOLOGY. Is it the main interest of the firm?

5. INTEREST IN SURVIVAL, GROWTH, AND PROFITABILITY. Did the firm define its economical objectives?
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Formulation of a business mission

-continued6. PHILOSOPHY. What are the basic values, aspirations, and philosophical priorities of the firm? 7. SELFCONCEPTION. What is the main difference of the firm against the others, what is its main competitive advantage? 8. RELATION TO THE PUBLIC. Does the firm consider the interests of society/community, environmental protection? 9. RELATION TO THE EMPLOYEES. Are the employees considered to be a valuable resource of the firm?
Critiques of mission
More often they are an application of PR than a pregnant description of a firms mission. Warringer: Official description of a mission of an organisation has to be considered a fiction produced by an organisation for a responsible explanation or reasoning of its existence to a concrete public. They are often full of generalisations, which do not enable to be strategically applied. They can be ignored by planners responsible for strategy formulation.
External environment analysis

Structure of external environment a) by the components
political, and legal economical social, cultural, demographic technological ecological international national regional industrial
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c) by the possibility to control factors

uncontrollable controllable
d) by the relation to a firm

opportunities threats
b) by the range of influence
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Opportunities and threats in the short and long term

Opportunities New (expected) Permanent Change from threats Opportunities
Threats Threats Change from opport. Permanent New (expected)
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Structural analysis of an industry

Definition of the term industry: A group of firms producing products (providing services), which are closely mutually substitutable The closeness is possible to judge by: product process geographic borders of the market
Types of industries
By concentration
By the level of maturity
new (emerging) in transition from rapid growth to maturity mature declining national (local) international (global)
fragmented oligopoly monopoly
By the level of international competition
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Fragmented industry
low barriers of entry barriers of exit (romantics, excitement...) absence of economies of scale or learning curve (simple operation) negative economies of scale (fast changes of fashion.. need of fast reaction) high transportation costs (e.g. cement production) high costs of inventory / stochastic changes of sales no advantages in negotiation with suppliers or distributors based on the size of a firm (large firm needs a large supplier...) low indirect costs (owner = manager) diverse assortment high share of creativity (interior projecting) personal services - cosmetic salons, consultancy, advocacy
Fragmented industry
(continued)
direct local control (night clubs, food-providing facilities) multiple needs of the market (scattered desires) high differentiation of products based on image - exclusivity, desire to have the brand only for self government ban on concentration (production of electricity, TV and radio stations etc.)
Strategic possibilities: overcoming assertion (e.g. standardisation) respecting (exploiting) assertion

New industry
technological uncertainty strategic uncertainty high starting costs, but steep decrease of costs high number of new firms or branches subventions danger = short-term view (short term marketing strategy)
Declining industry
absolute decrease of sales in a particular period (not a short period or cyclical change) necessity to analyse: demand identify the remaining sources of demand transfer to a less costing markets barriers of exit long term and specialised assets fixed costs on output strategic barriers interconnections (identity or image of a firm) limited admission to financial markets effect on vertical connections information barriers managerial or emotional barriers government or social barriers
Declining industry
strategic alternatives
Advantages against those interested in remaining markets
Leadership or niche
Harvest or fast liquidation
Niche or harvest
Fast liquidation
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Declining industry
Leadership
Strain for leadership in the market share
Harvest
Manage controlled liquidation of investment, exploit advantages
Niche
Create or defend a strong position in a particular segment
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Fast liquidation
Liquidate investment ASAP after the beginning of deterioration
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Porters model of competition within an industry

Potential new entrants
Suppliers
Rivalry among existing firms
Buyers
Substitutes
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Threat of new entrants

THE NEW ENTRANTS TYPICALLY: pursue actions that increase industry capacity; attempt to increase their market share; have substantial resources.
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- continued BARRIERS TO ENTRY - their nature changes in time !!! 1. Economies of scale possible to acquire through: - sharing activities with other units - diversification and integration - activities with common costs 2. Product differentiation barrier: high costs of breaking customer loyalty 3. Capital requirements purchasing production facilities gaining customers trust purchasing stock covering start up losses research and development

- continued 4. Switching costs nature: costs to buyers of switching from one product (producer) to another: - purchase of supplementary facilities - retraining staff - professional assistance and gaining new experience 5. Access to distribution channels nature: assuring distribution of production
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- continued 6. Cost disadvantages independent of scale nature: overcoming barriers and advantages of existing firms
ownership of production technology advantageous access to supplies advantageous location government subsidies learning and experience curve
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- continued EXPECTED RESPONSIVE ACTIONS nature: fear of responsive actions of existing firms discourages new entrants in advance signs of high probability of responsive actions:
past experience with powerful response massive resources for competing significant position in industry slow growth of industry
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Methods and intensity of rivalry among existing firms

RIVALRY RESULTS FROM:
reactions on eliminating threats pursuit to exploit opportunities
METHODS OF RIVALRY:
price competition advertising campaign introducing product improved quality
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Methods and intensity of rivalry among existing firms - continued

INTENSITY OF RIVALRY IS INFLUENCED BY:
rate of industry concentration industry growth rate fixed and storage costs size of capacity augmentation diversity of competitors nature of strategic intents exit barriers
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Pressure from substitute products

Substitutes result in a price lid on industry products. Substitute products require attention, if
1. They have improving price position 2. Are produced in industries with high profits
Strategy towards substitutes:

1. Push-out 2. Respect
Bargaining power of buyers

Methods of buyers competition:
pressure on price-reduction pressure on quality improvement pressure on service improvement pressure on terms of delivery etc.
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Bargaining power of buyers

- continued Bargaining power of buyers increases in the following situations:
1. Buyers are concentrated or they purchase a large portion of the sellers total sales 2. Buyer purchases from the industry a significant portion of its cost of goods sold 3. Buyers purchases from the industry are standard or undifferentiated 4. Switching costs are low 5. Buyer earns low profits. 6. Buyer has the potential for backward integration 7. The industrys product has little relevance to the quality of the buyers product 8. The buyer has full information (especially about the production costs)
Bargaining power of suppliers

Methods of suppliers competition
pressure on increasing prices pressure by lowering quality pressure by reducing service pressure by prolonging deliveries pressure by decreasing the delivered quantities pressure by a threat of conceding etc.
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Bargaining power of suppliers

- continued Bargaining power of suppliers increases in the following situations:
1. Supply is dominated by a few companies 2. Few substitutes for the suppliers products or services are available 3. The industry is not an important customer for the supplier 4. Suppliers product is an important input for the industry 5. Suppliers products are differentiated or switching costs are high 6. Suppliers pose a threat of forward integration
State influence
a) Concerning entry into industry:
awarding licences establishing quotas regulating industry regulating imports legislature - bylaws and obligatory norms methods of privatisation etc.
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State influence
- continued b) Inside industry:
anti-monopoly measures grants and subsidies establishing guaranteed prices advantageous credits system of taxation owner of a firm in industry buyer etc.
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State influence
- continued c) Towards substitutes:
all tools from b legislature etc.
d) Towards buyers:
all tools from b promoting exports etc.
e) Towards suppliers:
all tools from b eliminating barriers to import etc.

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Strategic groups analysis

Premises of the structural analysis: each industry comprises a homogenous set of firms, which compete with each other; structural forces in an industry have a similar impact on all firms.
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- continued But there are some differences among the firms within an industry: in size, resources, competencies, products, production technologies, cultures and many other attributes. Structural forces in an industry do not therefore impact all firms in the same way. All firms within an industry do not compete with each other. Each industry has got several groups of competing firms. Strategic groups analysis elaborates and amends an industry analysis.
Aspects of similarity/difference of firms

Product characteristics:
width of product line, features, functions, quality of product, emphasis on product/brand identity.
Organisational characteristics:
size of firm, objectives, scope of operation, rate of divisions integration, culture.
Production characteristics:
types of production systems, technology, scope of production, level of automation, cost structure, rate of vertical integration.
Financial characteristics:
level of financial leverage, capital resources and costs, approaches towards use of cash.
Aspects of similarity/difference of firms

- continued Market characteristics:
elements of marketing, served segments, price range, used distribution channels and attitudes towards promotion/advertising, product support by additional services like training customers, repairs, maintenance.
Forms of ownership:
functions within the portfolio of the parent-firm.
Relations with the home/local government:

in case of international firms government measures can cause different strategic constraints and enable different admission to key resources.
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Reasons for strategic groups analysis

sharpening the view of competition
help in identification of concrete opportunities ant threats in the environment.

Analysis can be done in the following way:
Identification of strategic groups within industry. Analysis of structural forces determining competition within strategic groups and among them. Identification of strengths and weaknesses of a firm related to its competitors within a respective strategic group. Identification of opportunities and threats influencing a firm.
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Identification of strategic groups

description of strategies of the most important competitors within an industry related to the strategic characteristics mentioned earlier; identification of firms applying similar strategies and mutually competing; evaluating the relative importance of strategic characteristics for a firms performance.
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Wide
GROUP A Generic producers, high production volumes
Production line
GROUP B Differentiated products
GROUP C Specialised producers, high production volume
GROUP D Exclusive brand
Narrow Low Product price

High
Structural analysis of strategic groups

examining groups owing to structural characteristics - examining rivalry of firms within each strategic group, evaluating barriers of mobility among strategic groups, bargaining power of buyers and suppliers, and threat of substitutes from other industries or other strategic groups.
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Identification of strengths and weaknesses regarding to the nearest competitors

Strengths = firm resources and abilities which build and keep barriers of mobility - increase bargaining power of the group towards buyers and suppliers, isolate a firm from its competitors, lower the costs of entry into other strategic groups, enable a firm to overcome the mobility barriers created by other groups.
Weaknesses = factors, which lower the barriers of entry, lower the bargaining power of the group towards buyers and suppliers, increase the rivalry among the members of the group and among the groups, increase the costs of entry into more attractive groups.
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Identification of opportunities and threats in industry

opportunities for:
creating new strategic groups within industry; transfer into more attractive strategic groups; strengthening the competitive position of a firm within its strategic group; - strengthening the structural position of its strategic group
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External Factor Evaluation Matrix

Identification of factors: meaningful for the whole industry meaningful for the firm not regarding their nature (opportunity or threat) Weight: relative importance of the factor for the whole industry range: <0;1>; the higher weight, the higher importance sum of the weights equals 1
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External Factor Evaluation Matrix

- continued Reaction: response of the current strategy on the particular factor 1 - very weak 4 - very strong Score: reaction multiplied by the weight; summation < 2,5 below average reaction of a firm on the external environment >2,5 above average reaction of a firm on the external environment
External factor evaluation matrix

Factor Weight Reaction Score
Prices of raw material Modernisation Taxes Buying power Foreign capital Mkg. strategy Distribution system Imports New markets Change of taste Demand for quality Total weighted score
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0,02 0,13 0,04 0,06 0,07 0,30 0,07 0,03 0,18 0,05 0,05
2 3 2 2 1 1 1 1 2 1 3
0,04 0,39 0,08 0,12 0,07 0,30 0,07 0,03 0,36 0,05 0,15 1,66
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Competitive profile matrix

Factor Weight Brand name 0.05 Services 0.15 Occupancy rate 0.15 Market segmentation 0.08 Market share 0.15 Gaming Properties 0.10 Financial Strength 0.18 Location of Properties 0.10 Contemporary Facilities 0.04 Total Weighted Score OUR FIRM Reaction Score 4 0.20 4 0.60 3 0.45 4 0.32 4 0.60 4 0.40 1 0.18 4 0.40 4 0.16 3.31 Competitor 1 Competitor 2 Reaction Score Reaction Score 4 0.20 3 0.15 4 0.60 3 0.45 3 0.45 3 0.45 2 0.16 3 0.24 3 0.45 2 0.30 4 0.40 1 0.10 4 0.72 3 0.54 3 0.30 3 0.30 3 0.12 3 0.12 3.40 2.56
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Identification of interest groups

Owners Creditors Customers & clients Employees Labour unions Municipality District authorities National government Scientific laboratories University research
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Suppliers Competitors Business management Suppliers of new technologies Public interest groups People from media Training system staff Artists world Religious groups Military field
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Interest groups and their demands

Group Type of demands from a company Stockholders Share on profits, on the new issued stocks, on assets in case of liquidation; right to vote, right to control accounting books, further rights named in the statute of a firm. Creditors Legal right of an interest from the credit, right of repayment of the credit, relative priority in case of liquidation. Employees Economical, social, and psychological satisfaction by labour, following the human rights, share on employee benefits, freedom to become a member of labour unions, freedom to offer the workforce by the employment contract, adequate labour conditions.

- continued Group Type of demands from a company Customers Products with the necessary service: technical data and users manual, guarantee, spare parts and service, research and development leading to an innovation of a product. Suppliers Permanent sales: following the contract conditions, professional relations. Governments Taxes, righteous and free competition, legal obligations of entrepreneurs, following the antimonopoly law. Unions Recognition as a mediator between employees and employers, a part of an organisation of a firm.

- continued Group Type of demands from a company Competitors Social and industrial rules of competition. Community Productive and healthy employment opportunities, participation of a firm on solution of local problems, permanent employment, righteous salaries, support of the local government, support of cultural and charity events. Public Tribute to the whole society, mutual understanding between the government institutions and entrepreneurial subjects, righteous division of responsibility between the government and businesses, adequate prices of the products.
Interest groups analysis

Interest group Basic interests Owners Supportive: Restrictive: Customers Supportive: Restrictive: ... Employees Supportive: Restrictive: Importance 09 09 09 09 09 09 Power 09 09 09 09 09 09
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Interest groups analysis (matrix)

High 9
Level of interest
Influence
5
Accept/ persuade Educate
Ignore
Low 0 0 Neglectable 5
9 Important
Influence of the IG on strategy

Structuring Internal environment by functional areas

Management - planning, organising, HRM, motivation,
control
Marketing - marketing systems, productivity, function Finance - liquidity, indebtedness, activity, profitability,
development
Production - operations, labour force, quality, capacity,

inventory
Research/development Information systems

Happy atom - 7 S
Structur e
Strategy
Systems
Shared values
Skills
Style
Staff
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Why 7 S
Effective organisational change is not only the question of structure, nor integration of strategy and structure It is a relation among the strategy, structure, systems, style, skills, staff and shared values
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Strategy
Program vision of the top managers Definition and organisation of the development objectives system Policies planned as reactions on the changes in the environment Way of improving the firms position in relation to the competition Has to be realised
Structure
Definition and function of integral parts of the organisational system, and their mutual information relations The main problem is not division of tasks, but clarity and co-ordination - how to do it to make it work The main task is to focus on those dimensions of structure, which are currently crucial for the organisational development - and being ready to change
Systems
All procedures (formal and non-formal), which are connected with the function of organisation capital budgeting, training, costs accounting, budgeting, monitoring of the environmental development... Facilitate valorisation of knowledge, experience, skills, and useful habits of people for the fulfilment of their functional mission in the firm Can be the dominant variable Change of systems can be relatively nondestructive way of organisational change
Style
Applied conception of doing business (way of behaviour of managers in realising managerial functions) Easily identifiable, but usually hard to change Decisive in getting the rest of organisation acquainted with the management style are not the words managers use, but types and ways of realisation of specific actions
Staff
People, who are participating on the realisation of managerial functions by decision-making or executive activities Deposit of resources, which has to be nurtured, developed, defended, and allocated Different views:
to keep the integrity of the optimum structure regardless of the people if there are the right people, structure does not matter
Skills
Set of knowledge, abilities, skills, and habits, which represent the thought richness of the firm professional and qualification background People tend to characterise firms by the things they do best Together with the change of strategy or structure it is often needed to add some new or put aside some old skills
Shared values
Leading concepts - set of values and aspirations, which overreaches the formal statement of a firms objectives Basic thoughts, on which a firm is based, and approximate ideas about the future direction of an organisation They take part in creating motivative environment
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Competitive advantage sustainability

Function of three factors:
Rate of elderliness of the key competencies with relation to changes in the environment Availability of substitutes to the key competencies Imitability of key competencies
All competitive advantages have a limited life. Therefore the question is not whether they will fade or not, but when they will fade...
Traditional factors of competitive advantage creation

Labour costs Admission to financial sources and raw materials Protected/regulated markets Everything can be suppressed by an international strategy Common over-capacity in industry it is hard to form competitive advantages
New perspective
Firm = mixture of heterogeneous resources, skills and key competencies, which can be used to acquire and keep an exclusive market position Every firm has got at least some sources and skills, which others do not have (at least not in the same combination) By using its key competencies, a firm can reach a better performance in its activities, than its competitors, or perform activities, which competitors can not imitate Organisation adds value and creates wealth The essence of business is not cheap purchases and costly sales, any more...
Components of Internal Analysis

RESOURCES Tangible Intangible CAPABILITIES The source of Teams of resources CORE COMPETENCIES The source of Sources of competitive advantage SUSTAINABLE COMPETITIVE ADVANTAGE Gained through core competencies
The foundation for
STRATEGIC COMPETITIVENESS Above-average returns 89
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Basic Value Chain

Firm infrastructure Support activities Human resource management Technological development Procurement
Marketing & sales
Inbound logistics
Outbound logistics
Operations
Primary activities
Service
Primary activities
Inbound logistics receiving, storing and disseminating inputs to a product Operations converting inputs into final product form Outbound logistics collecting, storing, and physically distributing the final product to customers Marketing and sales providing means through which customers can purchase products and inducing them to do so Service enhancing or maintaining a products value
Support activities
Procurement purchasing inputs needed to produce a firms products Technological development improving a firms product and the processes used to manufacture it Human resource management recruiting, hiring, training, developing and compensating all personnel Firm infrastructure supporting the work of the entire value chain effective and consistent identification of external opportunities and threats, resources and capabilities, and support of core competencies
Internal Factor Evaluation Matrix

Identification of factors: meaningful for the analysed firm not regarding their nature (strength or weakness) Weight: relative importance of the factor for the firm considering the external environment range: <0;1>; the higher weight, the higher importance sum of the weights equals 1
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- continued Reaction: response of the current strategy on the particular factor 1 - very weak 4 - very strong Score: reaction multiplied by the weight; summation < 2,5 below average reaction of a firm on the internal environment >2,5 above average reaction of a firm on the internal environment
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Factor Position on reg. market Quality of beer Quality of services Qualific. of workers Shareholders support Unused facilities Brand loyalty Distribution Information system Sales system Decrease of sales Mgt. orient. on cust. Flexibility Mkg. strategy Promotion effectiv. Firm location Total weighted score
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Weight 0,05 0,08 0,15 0,02 0,02 0,01 0,08 0,08 0,06 0,01 0,05 0,07 0,07 0,17 0,07 0,01
Reactio n 4 3 1 3 3 2 1 1 1 1 1 1 1 1 2 2
Score 0,20 0,24 0,15 0,06 0,06 0,02 0,08 0,08 0,06 0,01 0,05 0,07 0,07 0,17 0,14 0,02 1,48
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Goals/objectives definition
Objectives - compromise among the members of target groups connected with the organisation. Evaluation of the objectives, which are defined where are we going and why? Analysis of other possibilities of goal definition and opportunities to change Specification of objectives for the future
Management by Objectives, Results and rewards (MBO/MBORR)

Strengths:
Improvement of effectiveness in both quantity and quality Improvement of communication and apprehension Improvement of labour satisfaction Support of individual growth Clarification of the role definition
MBO/MBORR
Weaknesses

Managers can be more captious Managers can use the system as a persuader Goal definition evokes number of problems Process can be too short-term oriented Process can slowly loose its effectiveness Monetary bonuses are insufficient for keeping effectiveness The whole process is often too time-consuming Group dynamics is not considered Individuals have physical and mental limitations Objectives tend to become maximums, even though they could be overreached
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Characteristics of the Objectives

Related to results, not to activities
Related to ONE specific topic; Should not be formulated in phrases
Formulated in measurable units

Reachable, but also motivating Time specific
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Characteristics of the objectives

SMART:
Specific Measurable Agreed (accepted) Realistic Traceable (timed)
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Strategic gap
The difference between what would an organisation reach, if it didn't do anything, and did not develop new strategies, but simply continued in the current way with the same products and sales and operating on the same markets, and what does it want to reach (what kind of objectives were defined).
Types of strategies
Specific types of strategies
Kotler Ansoff Porter
Generic types of strategies

Integration Intensive Diversification Defensive
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Types of strategies - KOTLER

market
market market
leader
challenger follower
niche
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occupier (nicher)
Defence strategies
Flanking defence Pre-emptive defence Position defence
Attacker
Counteroffensive defence
Defender
Contraction defence
Mobile defence
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Attack strategies
Bypass attack Flanking attack Frontal attack Guerrilla attack
Attacker
Defender
Encircling attack
Types of strategies - Ansoff

Existing product New product
Market penetration Market development
Product development
Diversification
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Types of strategies - Porter

Competitive advantage
Lower costs Whole market Differentiation
Cost leadership
Target market
Differentiation
Focus
Market segment
Generic strategies - Integration

Forward Integration
Gaining ownership or increased control over distributors or retailers
Backward Integration
Seeking ownership or increased control of a firms suppliers
Horizontal Integration
Seeking ownership or increased control over competitors
Generic strategies - Intensive

Market Penetration
Seeking increased market share for present products or services in present markets through greater marketing efforts
Market Development
Introducing present products or services into new geographic areas
Product Development
Seeking increased sales by improving or modifying present products or services
Generic strategies - Diversification

Concentric Diversification
Adding new, but related products or services
Conglomerate Diversification
Adding new, unrelated products or services
Horizontal Diversification
Adding new, unrelated products or services for present customers
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Generic strategies - Defensive

Joint venture
Two or more sponsoring firms forming a separate organisation for co-operative purposes
Retrenchment
Regrouping through cost and asset reduction to reverse declining sales and profits
Divestiture
Selling a division or part of an organisation
Liquidation
Selling all of a companys assets, in parts, for thir tangible worth
Boston Consulting Group Matrix

High +30 Strengthen or maintain Forward, backward or horizontal integration Market penetration Market development Product development Joint venture Maintain the position Product development Concentric diversification Retrenchment Divestiture Low -30 1.0
09/03/2012
Strengthen or sell Market penetration Market development Product development Sell
Medium 0
Divestiture or liquidation Retrenchment Divestiture Sell Liquidation 0.0
112
0.50 Relative market share

General Electric Matrix

High
Average
Low
V
Weak
S
Medium Division strength
S
Strong
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Internal-External Matrix
High 4.0
I
3.0 Medium 2.0
II
III
IV
VI
VII
Low 1.0 4.0 3.0
VIII
2.0 Total IFE score
IX
1.0
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Internal-External Matrix
Cells I, II a IV
Grow and build
Intensive strategies (market penetration, market development, product development) Integration strategies (backward, forward and horizontal integration)
Cells III, V a VII

Hold and maintain
Market penetration Product development
Cells VI, VII a IX

Harvest or divest
Defensive strategies (joint venture, retrenchment, liquidation)
The previous matrices are a part of portfolio analysis

Showing situation of individual divisions (SBUs) for easier judgement of their needs. Divisions represented by circles:
Size of the circle = share on total sales (revenues); Size of pie-slice = share on total profits.
Enables better coordination of individual division strategies so that they contribute to fulfilment of the corporate goals.
Problems of portfolio-approach
(Coate)
Portfolio-approach is based on premises, which have to be examined in a concrete situation: Any firm can be divided into independent business units. Dominant firm reaches the highest profit on any market. Industry attractiveness is dependent on the stage of its life-cycle. Investment funds are limited and have to be alocated among all divisions within an organisation.
Problems of portfolio-approach
Portfolio models tend to neglect other facts, which have to be included in the optimum model of investment planning:
Funds invested into different divisions should be distributed so that the marginal rate of return is equal. It is possible, that in case of a secret agreement of competitors, the recommended strategies should be ignored. Liquidation value of a division is a better measure of its value than the more often used way based on costs. Liquidation is much more acceptable strategy. Risk is paid a very small quantitative attention in portfolio models.
Conclusions
a) The real process of SBU definition is very complex more art than science. b) Use of a portfolio matrix represents much more time and attention than is described in its concept. c) Validity of strategies recommended by the model is problematic. Because some premises of the model can be wrong, strategies based on them are not necessarily successful.
Strategic Position and Action Evaluation Matrix

Financial strength
Conservative
Market penetration Market development Product development Concentric diversification
Aggressive
Market penetration Market development Product development Forward, backward, and horizontal integration Concentric, conglomerate, and horizontal diversification Industry strength
Competitive advantage
Defensive
Retrenchment Divestiture Liquidation Concentric diversification
Competitive
Forward, backward, and horizontal integration Market penetration Market development Product development Joint venture
Environmental stability
Developing the SPACE Matrix

1. Identification of the factors belonging to the four groups (FS, CA, ES, IS)
2. Evaluation of factors FS, and IS:

CA, and ES:
1 - worst firms reaction 6 - best reaction -1 - best reaction -6 - worst reaction
3. Calculating the (weighted) averages for each individual dimension 4. Adding the two x-axis dimensions, and the two y-axis dimensions, and plotting the resultant point in the graph.
5. Drawing a directional vector from the origin of the SPACE Matrix through the intersection point. This vector reveals the type of strategies recommended for the organisation.
Example of factors that comprise the SPACE matrix axes

Financial strength (FS)
Return on investment Leverage Liquidity Working capital Cash flow Ease of exit from market Risk involved in business
Environmental stability (ES)

Technological changes Rate of inflation Demand variability Price range of competing products Barriers to entry into market Competitive pressure Price elasticity of demand
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Example of factors that comprise the SPACE matrix axes

Competitive advantage (CA)
Market share Product quality Product life cycle Customer loyalty Competitions capacity utilisation Technological know-how Control over suppliers and distributors
Industry strength (IS)

Growth potential Profit potential Financial stability Technological know-how Resource utilisation Capital intensity Ease of entry into market Productivity, capacity utilisation
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SWOT Matrix
STRENGTHS 1. Beer quality 2. Position on the local market 3. Qualification of workers 4. Shareholders support 5. Unused facilities 6. Firm location WEAKNESSES 1. Marketing strategy 2. Quality of services 3. Brand loyalty 4. Distribution channels 5. Mgt. orientation on customers 6. Flexibility/Reactivity 7. Promotion effectiveness 8. Information system 9. Sales decrease 10. Accounting system W-O S T R A T E G I E S 1. Brand beer-houses chain (O1,3,4,5;W1-9) 2. System of professional dealers (O1,2,4,5;W1-4,6-9) 3. Promotion activities (O1-5;W1-3,6-9) W-T S T R A T E G I E S 1. Courses of marketing and management (T1-4;W1,2,4-8) 2. Improvement of the information system (PC) (T1-3,5,6;W1,2,4,6-10)
OPPORTUNITIES 1. Development of mkg. strategy 2. New markets 3. Modernisation 4. Distribution system 5. Demand for quality THREATS 1. Foreign capital 2. Purchasing power 3. Change of taste 4. Taxes 5. Imports 6. Prices of supplies
S-O STRATEGIES 1. Buying the inn by the brewery (O1,3,5;S1,2,5,6) 2. Market development (O1,2,3;S1,3,4) 3. Wholesale warehouses (O1-5;S1,2,5) S-T S T R A T E G I E S 1. Fusion with a foreign partner (T1;S1-4)
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Grand strategy matrix

Rapid market growth Market development Market penetration Product development Horizontal integration Retrenchment Liquidation Weak competitive position Market development Market penetration Product development Forward, backward and horizontal integration Concentric diversification Strong competitive position
Retrenchment Concentric diversification Concentric diversification Horizontal diversification Horizontal diversification Conglomerate diversification Conglomerate diversification Joint venture Divestiture Liquidation Slow market growth
Arthur D. Little Matrix

Stage of the life-cycle Introduction Dominant Strong Growth Maturity Decline
Competitive position
Advantageou s Sustainable Weak Untenable
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Directional policy matrix

Conditions of profitability of the market sector
Unattractive Average Gradually reduce Attractive Double or leave
Competitive position of a firm
Weak
Do not invest
Average
Gradually reduce
Carefully develop
Accelerate
Strong
Harvest
Growth
Lead
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Halls model of competitiveness

High Garden of Eden Good perspective G o o d Differentiation p e r s p e c t i v e Low Costs
Zone of competitive battle
Danger zone
Death valley
Low
High
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Internal evaluation of strategies Quinn

Focuses on a clear set of goals. Assumes environmental changes and takes pre-emptive measures. Concentrates the energy, resources and power of a firm on the critical problems and prevents their wasting in ineffective directions. Leaves selected positions to competition (concentration). Prevents competition from attacking its position. Allows firm a sufficient flexibility in exploiting opportunities. Enables a quick, discreet manoeuvring, reallocation of resources and changing direction. Does not close a firm into irreversible directions.
Internal evaluation of strategies

- continued Provides a responsible and concentrated leadership towards the main goals. Co-ordinates goals into a unity of commands and prevents chaos. Uses speed, secrecy and intelligence to create a moment of surprise for competitors - prevents them from immediate reaction. Does not uselessly threaten and put under risk any part of a firm. Is reported to the involved parts of an organisation. Is understood by managers influenced by it and involved in its implementation.
External evaluation of strategies Quinn

use of industry experts and consultants from outside of an organisation - other opinion on the quality of a strategy; identification of problems connected with implementation, which managers do not/do not want to see; industry experts a have specialised knowledge of the whole industry, future trends of demand and technological and regulation trends - including this knowledge in the strategy formulation process.
Quantitative strategic planning matrix

Rating
reaction of the current strategies at the particular factors (overtaken from IFE and EFE matrices)
AS - Attractiveness Score
reaction of the suggested strategies at the particular factors (1- not acceptable; 4 - most acceptable)
TAS - Total Attractiveness Score

Rating multiplied by Attractiveness Score
Quantitative strategic planning matrix

Factor Rating Strategy #1 AS INTERNAL FACTORS Experienced management Working capital Plants location R&D department Return on investment EXTERNAL FACTORS Rise of interest rates Population growth Financial services Foreign competitors Industry deregulation Sum total attractiveness score
09/03/2012 Strategic Management
Strategy #2 AS 2 3 4 0 3 4 2 2 3 0 TAS 6 12 4 0 3 8 6 8 3 0 50
133
TAS 12 8 2 0 2 6 12 16 1 0 59
3 4 1 3 1 2 3 4 1 2
4 2 2 0 2 3 4 4 1 0

Origin and Development of the Term "Strategy

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Origin and Development of the Term "Strategy

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The term strategy

Definition of strategy by Henry Mintzbergs 5 P

Model of a business strategy

Contents of Strategic Management

Conditions requiring the use of strategic management

Fast Discontinuity International Diversified Divisional Large

Ways of strategic thinking stimulation

Strategic thinking stimulation

Integrated model of the process of Strategic management (Digman)

Strategy formulation strategic alternatives evaluation and selection

Model of the management process by Johnson and Scholes

Defining strategic possibilities

Strategic analysis Strategy formulation and selection Strategy implementatio n

Planning and resource allocation

Evaluation of possibilities Strategy selection

Organisatio nal structure

Complexity of strategic management

Vocabulary of Strategic Management

Vocabulary of Strategic Management

Vocabulary of Strategic Management

Views of Strategic Management

Views of Strategic Management

Views of Strategic Management

Views of Strategic Management

Views of Strategic Management

Formulation of a business mission by answering questions

4. TECHNOLOGY. Is it the main interest of the firm?

Formulation of a business mission

External environment analysis

c) by the possibility to control factors

d) by the relation to a firm

b) by the range of influence

Opportunities and threats in the short and long term

Threats Threats Change from opport. Permanent New (expected)

Structural analysis of an industry

By the level of international competition

Strategic possibilities: overcoming assertion (e.g. standardisation) respecting (exploiting) assertion

Harvest or fast liquidation

Porters model of competition within an industry

Rivalry among existing firms

Threat of new entrants

Threat of new entrants

Threat of new entrants

Threat of new entrants

Threat of new entrants

Methods and intensity of rivalry among existing firms

Methods and intensity of rivalry among existing firms - continued

Pressure from substitute products

Strategy towards substitutes:

Bargaining power of buyers

Bargaining power of buyers

Bargaining power of suppliers

Bargaining power of suppliers

all tools from b promoting exports etc.

all tools from b eliminating barriers to import etc.

Strategic groups analysis

Strategic groups analysis

Aspects of similarity/difference of firms

Aspects of similarity/difference of firms

Relations with the home/local government:

Reasons for strategic groups analysis

help in identification of concrete opportunities ant threats in the environment.