1 What is Strategy

8/8/2019 1 What is Strategy

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What is Strategy?

Introducing the Concepts


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Overview

Why do some firms succeed whileothers fail?

A central objective of strategic management is to

learn why this happens.

What is strategy?

An action a company takes to attain superior

performance.

What is the strategic managementprocess?

The process by which managers choose a set of

strategies for the enterprise to pursue its vision.


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Business Proposition

Profits = Quantity (Revenue - Cost)

3 most fundamental variables in Business

MARGIN


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Why might firms differ in profitability?

Different industries?

Different times different macroeconomic conditions?

Different competitive positions?

Different levels of operational effectiveness?

All of these matter


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Above Normal

Profits(in Excess of the Competitive Level)

Avoid

CompetitorsBe Better Than

Competition

Attractive

Industry

Attractive

Niche Cost

Advantage

Differentiation

Advantage

Attractive

Strategic

Group

Entry

Barriers

Mobility

Barriers

Isolating

Mechanisms

Sources of Superior Performance


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Fundamentals of Competitive Strategy

Superior Long-Run

Performance

Attractive Industry

StructureCompetitive

Advantage

Superior Competitive

Position

Operational

Effectiveness

Do different things than

rivals

Do the same things as

rivals but better

The central goal

High returns for the average

participant

Outperform the average

industry participant


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Business Strategy

Defining how an organization will use itsscarce resources to achieve sustainable

competitive advantage.

Strategy is the creation of a unique andvaluable position, involving a different set

of activities.

T

he essence of strategy is in theactivities choosing to perform activities

differently or to perform different activities

than rivals.


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What is a Strategy?

Strategy

A strategy is a declaration of intent, defining

where you want to be in the long term.It is a unique synthesis of features, design,

quality, service, positioning and cost.

Central to the concept of strategic planning is

the notion of a competitive advantage.


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Strategy is the art of creating value. It provides

the intellectual frameworks, conceptual models,and governing ideas that allow a companys

managers to identify opportunities for bringing

value to customers and for delivering that value

at a profit.In this respect, strategy is the way a company

defines its business and links together the only

resources that really matter in todays

economy: knowledge and relationships or anorganizations competencies and customers.

Normann, R. and Ramirez, R., From Value Chain to Value Constellation:

Designing Interactive Strategy,Harvard Business Review, July-August 1993, p.65.


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Strategy is Like a Game of Chess

Strategy is somewhat

like a game of chess,and is all about

positioning your own

pieces to gain

advantage.


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Definition of Strategy

Goal-directed decisions and

actions in which its capabilitiesand resources are matched with

the opportunities and threats in

its environment


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Defining Strategy

A firms strategy isdefined as follows

Definition of Strategy

A strategy is a theory about

how to gain competitive

advantages. A good

strategy is a strategy that

actually generates such

advantages.


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What is a strategy?

determination of the basic long-term goals

and objectives of an enterprise, and the

adoption ofcourses of action and the

allocation of resources necessary for

carrying out these goalsChandler

a commitment to undertake one set of

actions rather than anotherOster


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What is a strategy?

A pattern of resource allocation that enables

firms to maintain or improve their

performance.

The pattern or plan that integrates anorganizations major goals, policies, and

action sequences into a cohesive whole.

(Quinn, 1980)A unified, comprehensive, and integrated

plan designed to ensure that the basic

objectives of the enterprise are achieved.

Glueck, 1980:9


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What is a Strategy?

...the game plan management has for

positioning the company... entails

choice among alternatives and signals

organisational commitment to specific

markets, competitive approaches, and

ways of operating.Thomson and Strickland


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What Is Strategy?

A companys strategy consists of the set ofcompetitive moves and business approachesthat management is employing to run thecompany

Strategy is managements game planto

Attract and please customers

Stake out a market position

Conduct operations

Compete successfully

Achieve organizational objectives


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What is Strategy?

An integrated and coordinated set of

commitments & actions designed to

exploit core competencies and gain a

competitive advantage.


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Strategy Defined as 5 Ps

Plan: A direction, guide, course ofaction.

Pattern: Consistency in behavior over

time.Position: Locating specific products in

specific markets.

Perspective: Way of doing things (TheHP Way).

Ploy: Specific maneuver to outwit.

From Strategy Safari by Mintzberg, Ahlstrand, Lampel (1998)


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STRATEGIC FIT

MODEL

Strategic Mindsets

STRATEGIC INTENT

MODEL

Source, Hamel and Prahalad, Strategic Intent, HBR

Strategic thinking is driven by

the match between current

capabilities and existing

opportunities

Searching for sustainable

advantages

Finding protected niches

Strategic thinking is driven by

bridging gap between todays

reality and tomorrows vision

Finding ways to leverage

resources

Outpacing competitors in buildingnew advantages

Making new industry rules


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Strategies require fit

Fit refers to the niche a firm serves and the wayits products or services are positioned

But fit also has to do with every other part of theinternal structure of the firm.

A well positioned firm craftsitself to serve aniche better than anyone else

Starting a new firm offers the exciting,seductive, often advantageous opportunity to

craft a perfect fit between specific opportunitiesand internal capabilities.


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Business Strategy Technology Strategy

Business Processes Technology Processes

BUSINESS TECHNOLOGY

STRATEGY

EXECUTION

S

T

R

A

T

E

G

I

C

F

I

T

FUNCTIONAL INTEGRATION

Strategic alignment exists when we have strategic fitand

functional integration across all domains.


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Strategic Fit is the

degree to which the

strategy and process,vertically within a

domain, are consistent

and supportive.

As strategies change, the underlying

processes must keep pace

And, as the processes evolve and improve,

the strategies need to exploit these

changes


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Functional Integration is

the degree to which the

business and technology

components, horizontally

within a domain, areconsistent and supportive.

As the business changes, the related

technology areas must keep paceAnd, as technology advances create new

opportunities, the business domains must

find ways to assess, capture, and leverage


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Why Are Strategies Needed?

Toproactively

shape how a

companysbusiness will

be conducted

To mold the

independent

actions anddecisions of

managers and

employees into acoordinated,

company-wide

game plan


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Common Elements in Successful Strategy

Successful

Strategy

Profoundunderstanding ofthe competitiveenvironment

Objectiveappraisal ofresources

Long-term, simpleand agreed uponobjectives

$

EFFECTIVE IMPLEMENTATION

Source: Adapted from Robert S. Grant, 1991


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Tests for a good strategy

Goodness of fit test

matches well the companys situation

internal

external

Competitive advantage test

leads to sustainable competitive advantage

Performance testleads to superior performance

profitability

long term business/ market position strength


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A good strategy

neutralizes threats and exploits

opportunities while capitalizing on

strengths and avoiding or fixing

weaknesses.

(Barney, 1997:17)


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Business Strategy Must1. Take a Medium Term View eg 2 to 4 years

? VATCompetitors

Late Payers

Bank ManagerStrikes

2. Be developed by Owners / Directors

NOTICE:

The Buck Stops Here


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Business Strategy Must3. Focus on Matters of Strategic Importance

4. Be Separated from day to Day Issues.


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Business Strategy Must

5. Be Realistic Detached & Critical

6. Not be viewed as another form of Budgeting

Our strategic plan details

our sales and profits for the

next five years, so thateverybody knows how much

they can spend.


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Business Strategy Must

11.Relate to market niches

Market Entry

MR. BIG LTD.HUGE CO. LTD.

SmallCompany


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Deliberate versus Emergent Strategies

Realized

StrategyUnrealized

Strategy

Emergent Strategy

Adapted from: Mintzberg, H. The Strategy Concept I: Five Ps for Strategy California ManagementReview. Volume 30Number1, Fall 1987.

Sustained

Superior

Performance

strategy can emerge froma Pattern in the stream of decisions or actions


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Adapted from The Rise and Fall of Strategic Planning by Henry Mintzberg (1993)

Strategic Planning

nrealized

Strategy

Plans ec ted

mergent

Strategy

Realized Strategy

10%

90% 90%


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The Strategic Management Process for

Intended and Emergent Strategies


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Vision and Mission

External Analysis

Opportunities and Threats

Internal Analysis

Strengths and Weaknesses

Strategic Choice

SWOT

OrganizationalStructure

Designing ControlSystems

Business Strategy

Strategy Implementation/Tactics

Feedback

SuccessionPlanning


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Strategic as futuristic

Futurism doesnt

mean predicting an

awesome wonder;

rather it meansrecognizing and

describing a small

apparent oddity that is

destined to become agreat commonplace.

Apophenia: The

spontaneous

perception of

connections andmeaningfulness in

unrelated things.


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The strategy pyramid

Influence

Operating

Function

Business

Corporate

Uniting the strategy-making effort through

vertical and horizontal linkages.

Co-ordination through mutually reinforcing

vision, objectives & strategies.


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Levels of Strategy

Corporate strategy... defines the scope of the

business in terms of the industries and markets in

which it competes. includes decisions about diversification, vertical integration,

acquisitions, new ventures, divestments, allocation of scarceresources between business units

Business strategy... is concerned with how the firm

competes within a particular industry or market... to

win a business unit must adopt a strategy that

establishes a competitive advantage over its rivals.

Functional strategy... the detailed deployment of

resources at the operational level


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Levels of Strategy

Division A

R & D

Personnel

Finance

Production

Marketing/Sales

DivisionB

R & D

Personnel

Finance

Production

Marketing/Sales

Source: Robert M. Grant, Contemporary Strategy Analysis, Basil Blackwell, 1991.

FUNCTIONAL

STRATEGIES

BUSINESS

STRATEGY

CORPORATE

STRATEGY

CORPORATE

HEAD OFFICE


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Corporate-Level Strategies

Corporate Level Strategies

Are actions firms take to gain competitive advantage by

operating in multiple markets or industries simultaneously.

Common corporate strategies include:Vertical integration strategies

Diversification strategies

Strategic alliances strategies

Mergers and acquisition strategies


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Corporate-Level Strategies

Vertical integration

Diversification

Strategic alliancesAcquisitions

New ventures

Business portfoliorestructuring


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Business-Level Strategies

Cost leadership

Attaining, then using the lowest total cost basis

as a competitive advantage.

Differentiation

Using product features or services to distinguish

the firms offerings from its competitors.

Market niche focusConcentrating competitively on

a specific market segment.


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Functional-Level Strategies

Focus is on improving the effectiveness of

operations within a company.

Manufacturing

Marketing

Materials management

Research and development

Human resources


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Global-Level Strategies

Multidomestic

International

GlobalTransnational


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Single-business Firms

Os r egies

Fin n i lun ing

s r egies

r e ings r egies

um nrel i nss r egies

r r e

business level


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Multiple business Firms

Business 1Type title here

POM/R&Dstrategies

Financial/accounting

strategies

Marketingstrategies

Humanrelations

strategies



Corporate

strategies


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Levels of Strategy

Tata Motors Corporate StrategyHQ

Level

LCVsStrategy

Business Unit

Level

HCVsStrategy

Business Unit

Level

PassengerCars StrategyBusiness Unit

Level

SPVsStrategyBusiness

Unit Level

Marketing

Strategy

Functional

Level

Production

Strategy

Functional

Level

HR

Strategy

Functional

Level

Finance

Strategy

Functional

Level

Purchasing

Strategy

Functional

Level


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Characteristics of Strategic Decisions

Corporate-level

decisions

Greater risk,cost,

and profit potential

Greater need for

flexibility

Longer time horizons


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Functional-

level

decisions

Implement overall strategy

Involve action-oriented

operational issues

Are relatively short range

and low risk

Incur only modest costs


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Business-level

decisions

Bridge decisions at

corporate and functional

levels

Are less costly, risky, and

potentially profitable than

corporate-level decisions

Are more costly, risky, and

potentially profitable than

functional-level decisions

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