Strategic Management

Strategy: The unifying theme that gives coherence and direction to the decisions of an organization Strategic Management: Consisting of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.
Strategic Management basically seeks to answer the question:

How and why do some firms outperform others?

Historical Development of Business Strategy

The Influence of Large Companies and Competition.
Alfred Sloan, CEO of GM, 1923 1946 - One of the first to analyze competition, Ford, and devise a strategic plan based on its strengths and weaknesses. Chester Barnard, Senior Executive of New Jersey Bell, 1930s - Argued managers should pay attention to strategic factors which depend on personal or organizational action.

The Influence of Wartime (WWI and WWII):

Allocation of scarce resources Use of quantitative analysis in planning The concept of learning curves The concept of distinctive competence - first mentioned by Philip Selznick, a sociologist, in a debate about whether or not to combine the military forces into a single unit (i.e., no Army, Navy, Air Force, Marines, just the US Military).
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More Historical Development

1950s: Strategy was largely introduced in business schools as a way of analyzing the competitive environment and setting organizational goals and objectives to fit that environment. Since then, major developments include:
Kenneth Andrews SWOT Analysis was developed still in use today. Theodore Levitts Marketing Myopia argued that when companies fail it typically is because firms focus on the product rather than the changing patterns of consumer needs and tastes. Igor Ansoff argued, in response to Levitt, that a firms mission should exploit an existing need in the market, rather than using the consumer as the common thread in business. In reality a given type of customer will frequently have a range of product missions or needs. Corporate Strategy, 1965. BCG developed the experience curve and portfolio analysis concepts. McKinsey & Companys development of SBUs and the nine-block matrix. Mintzbergs Deliberate, Emergent & Realized Strategies Porters Generic Strategies
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Evolution of strategic management

From his extensive work in the field, Bruce Henderson of the Boston Consulting Group concluded that intuitive strategies cannot be continued successfully if (1) the corporation becomes large, (2) the layers of management increase, or (3) the environment changes substantially. Phase 1 - Basic financial planning: Seek better operational control by trying to meet budgets. Phase 2 - Fore-cast based planning: Seeking more effective planning for growth by trying to predict the future beyond next year. Phase 3. Externally oriented planning (strategic planning): Seeking increasing responsiveness to markets and competition by trying to think strategically. Phase 4. Strategic management: Seeking a competitive advantage and a successful future by managing all resources. Phase 4 in the evolution of the strategic management includes a consideration of strategy implementation and evaluation and control, in addition to the emphasis on the strategic planning in Phase 3. General Electric, one of the pioneers of the strategic planning, led the transition from the strategic planning to strategic management during the 1980s.

BCGs Growth-Share Matrix

High Share High Growth Star Low Share Question Mark

Slow Growth

Cash Cow

Bark!!

Dog

Forms of Strategy
Mintzbergs Critique of Formal Strategic Planning: The fallacy of prediction the future is unknown The fallacy of detachment -- impossible to divorce formulation from implementation The fallacy of formalization --inhibits flexibility, spontaneity, intuition and learning.

Unrealized Strategy

Realized Strategy

Emergent Strategy

**Normally emergent strategy comes from learning and dissemination within the organization.
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Porters Generic Strategies

Competitive Advantage Lower Cost Differentiation
Strategy 1 Strategy 2

Broad Target Competitive Scope

Cost Leadership
Strategy 3A

Differentiation

Strategy 3B

Narrow Target

Cost Focus

Differentiation Focus

Differing Perspectives of the Strategic Management Process

I/O Model
External Environment Industry Attractiveness Strategy Formulation

RBV Model
Resources Capability Sustainable CA

Assets/Skills Assessment
Implementation

Strategy Formulation
Implementation
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Strategy, Survival and Success

The ultimate goal of the organizations is to be successful success is GAS: Goal Achievement Above average returns/Profitability (probably most important, because it determines the ability to achieve the above two) Survival (long-term success)
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The Balanced Scorecard

FINANCIAL
To succeed financially, how should we appear to our shareholders? Objectives Measures Targets Initiatives

To achieve our vision, how should we appear to our customers?

Lagging
CUSTOMER
Objectives Measures

INTERNAL BUSINESS PROCESSES

Targets Initiatives Vision & Strategy To satisfy our shareholders and customers, what business processes must we excel at? Objectives Measures Targets Initiatives

Hard

Leading

INNOVATION AND LEARNING

To achieve our vision, how will we sustain our ability to change and improve? Objectives Measures Targets Initiatives

Soft
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Thinking Strategically:
The Three Big Strategic Analysis Questions 1. Where are we now? What is our situation? 2. Where do we want to go?
Business(es) we want to be in and market positions we want to stake out

Buyer needs and groups we want to serve

Outcomes we want to achieve

3. How will we get there?

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Strategic Control (6)

Formulating Directions - Develop Vision/Mission (1) -Set Objectives (2)

Organizational Culture Stakeholder Influence Values / Ethics

Opportunities and Threats from Economic, Political, Technological etc Sources Opportunities and Threats from Competition and Key Stakeholders Organizational Culture Stakeholder Influence Values / Ethics

Strategic Analyses (3)

External Environment

Competitor/Stakeholder
Internal Organization

Strategy Formulation (4) -Formulate and Consider Alternatives -Make Strategy Choice

Context of Strategy
(type of organization, culture, values, life cycle competitive position) 12

Hambrick & Fredrickson, 2001

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The Strategy Concept Levels of Analysis

Where to Compete?
How to Compete? How to Contribute?
Corporate Strategy

Business Strategy

Functional Strategy

Choice of Products Choice of Markets Choice of Competitors

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