TOPIC1.
INTRODUCTION
AND THE CONCEPT OF
STRATEGIC MANAGEMENT
CONTENT OF LECTURE
Definition and nature of strategic management
• Definition of strategy
• Phases of strategic management
• Benefits and limitations of strategic management
• Competitive advantage
DESCRIPTION OF STRATEGIC MANAGEMENT
Strategic
management is the
integrative
management field
that combines
analysis, formulation,
and implementation
the strategy and the
quest for competitive
advantage
STRATEGIC MANAGEMENT AS A FIELD OF STUDY
Although strategic
management as a field of study
has developed mostly over the
last century, the concept of
strategy is much older.
Understanding strategic
management can benefit
greatly by learning the lessons
that ancient history and
military strategy provide.
STRATEGY’S CORE PRIORITY IS TO SECURE
COMPETITIVE ADVANTAGE
WHAT IS COMPETITIVE ADVANTAGE ?
A firm that achieves
superior performance
relative to other
competitors in the same
industry or the industry
average has a competitive
advantage.
STRATEGY AND COMPETITIVE ADVANTAGE
An ability to meet
customer needs more
effectively, with products
or services that customers
value more highly, or
more efficiently, at a lower
cost.
ABSOLUTE AND COMPARATIVE ADVANTAGE
ABSOLUTE ADVANTAGE
The Absolute Advantage is the inherent ability of a country to
produce specific goods in an efficient manner at lower marginal
cost in comparison to other Country. Simple example of absolute advantage
output-per-country
In this example, Brazil has an absolute advantage in producing bananas (8 to 1).
The US has an absolute advantage in producing cars (5 to 2)
COMPARATIVE ADVANTAGE
The concept of Comparative Advantage refers to the
country’s capability of producing the specific good at
lower marginal cost and opportunity cost in
comparison to other Country.
Strategy is a set of goal-directed
actions a firm takes to gain and sustain
superior performance relative to
competitors.
WHAT DO WE MEAN BY STRATEGY?
A company’s strategy is the set of actions that its managers take to
outperform the company’s competitors and achieve superior
profitability (Thompson et al)
- What is our present situation?
- Where do we want to go from here?
- How are we going to get there?
How’s of strategy
- Critical decisions to make on how to compete
ORIGIN OF STRATEGY
Strategy”, narrowly defined, means “the art of the general” (the
Greek stratos, meaning ‘field, spread out as in ‘structure’; and agos,
meaning ‘leader’).
The term first gained currency at the end of the 18th century, and
had to do with stratagems by which a general sought to deceive an
enemy, with plans the general made for a campaign, and with the
way the general moved and disposed his forces in war.
STRATEGY AND STRATEGIC PLAN ?
A company’s strategic plan lays out its future direction, business
model, performance targets, and competitive strategy.
A strategic vision + mission + objectives
+ strategy = A strategic plan
HERE ARE SOME DEFINITIONS OF STRATEGY
Chandler(1962)Strategy is the determinator of the basic long-term goals
of an enterprise, and the adoption of courses of action and the allocation
of resources necessary for carrying out these goals.
Mintzberg (1979) Strategy is a mediating force between the organization
and its environment: consistent patterns in streams of organizational
decisions to deal with the environment.
Prahlad (1993) Strategy is more then just fit and allocation of resources.
It is stretch and leveraging of resources.
Porter (1996) Strategy is about being different. It means deliberately
choosing a different set of activities to deliver a unique mix of value .
MINTZBERG HAS IDENTIFIED THE 5 P’S OF STRATEGY
To capture this complexity, Professor Henry Mintzberg of McGill
University in Montreal, Canada, articulated what he labeled as “the 5
Ps of strategy.”
1. A plan, a “how do I get there”
2. A pattern, in consistent actions over time
3. A position that is, it reflects the decision of the firm to offer
particular products or services in particular markets.
4. A ploy, a maneuver intended to outwit a competitor
5. A perspective that is, a vision and direction, a view of what the
company or organization is to become.
EXPLAIN IN DETAIL THE PROCESS OF STRATEGIC
MANAGEMENT
Organizational Mission: formulation of mission
Environmental analysis: analysis of general environment, Industry &
competition analysis
Organizational analysis: SWOT analysis
Organizational Objectives: formulation of objectives:
Elaboration of strategy (Identification of strategic alternatives): stability,
retrenchment, growth & combination strategy
Choice of strategy: focusing on strategic alternatives
Implementation of strategy: Implementation of strategic alternatives
Evaluation & control: Evaluation & control of strategic alternatives
CRAFTING AND EXECUTING A COMPANY’S STRATEGY
Strategic management task requires enterprises to
identify their main clienteles, how they benefit from their
relationships and will benefit in the future. The benefits
can be both economic (financial) and non-economic (social
well-being and perhaps humanitarian).
So a strategy affects multiple stakeholders.
STAKEHOLDERS
Stakeholders of an enterprise are the various actors and
agencies in society that (in fact or perception) benefit from
or are harmed by its actions. They include its clienteles,
owners, employees and many other parties who have an
interest in what it is and what it does. As will be seen, the
many kinds of stakeholder differ in their expectations of
each enterprise.
PHASES OF STRATEGIC MANAGEMENT
Phase 1—Basic financial planning: 1900 -1950
Phase 2—Forecast-based planning: 1960 -1970
Phase 3—Externally oriented (strategic) planning
1970 -1980
Phase 4—Strategic management 1980 -
STRATEGIC PLANNING AND LEARNING: INTENDED,
EMERGENT, AND REALIZED STRATEGIES
EVOLVING STRATEGY
Crafting a strategy is not a one-time
event
Evolving nature of strategy:
- Proactive (deliberate) strategy:
Consists of strategy elements that are
both planned and realized as planned
- Reactive (emergent) strategy:
Consists of new strategy elements that
emerge as changing conditions warrant
Source: Mintzberg and Waters (1986)
KEY TAKEAWAY
Most organizations create intended strategies that they
hope to follow to be successful. Over time, however,
changes in an organization’s situation give rise to new
opportunities and challenges. Organizations respond to
these changes using emergent strategies. Realized
strategies are a product of both intended and realized
strategies.
BENEFITS OF STRATEGIC MANAGEMENT
Financial Benefits: It results into financial benefits to the
organizations in the form of increased profit even in the face of
environmental threats.
Offsetting Uncertainnity: By prescribing the future course of action.
Clarity in Objectives & Directions: It is used for achieving those
objectives, they focus on clarity of objectives.
Increased Organizational Effectiveness: Its concept is that the
organization is able to achieve its objectives within the given resources.
Personnel Satisfaction: If the decisions are systematised in the
organization everyone knows how to proceed, how to contribute
towards objectives this clarity brings satisfaction.
LIMITATIONS:
Complex & Dynamic Environment: We require knowledge of the
trend in the environment, increase in complexity leads in difficult to
predict the future outcome
Inadequate Appreciation of Strategic Management: Managers
are inadequately aware about its contribution to the success & the
way in which Strategic Management (SM) can be undertaken
Limitations in Implementation: Many problems cannot be solved
by SM alone but require the use of other aspects of management
WHO SHOULD ELABORATE
(CRAFT) THE STRATEGY ?
1. The Chief Architect approach
There are
basically 2. The Delegation Approach
four
approaches 3. The Collaborative or Team
to crafting a Approach
strategy
4. The Corporate Entrepreneur
Approach
THE CHIEF ARCHITECT APPROACH:
A single person – the owner or CEO – assumes the role of
chief strategist and chief entrepreneur, single handedly
shaping most or all of the major pieces of strategy.
The chief architect approach to strategy formation is
characteristic of companies that have been founded by the
company’s present CEO.
Michael Dell at Dell Computer, Steve Case at America Online, Bill
Gates at Microsoft, and Howard Schultz at Starbucks are
prominent examples of corporate CEOs
THE DELEGATION APPROACH:
Here the manager in charge delegates big chunks of the
strategy-making task to trusted subordinates, down -the-line
managers in charge of key business units and departments,
a high-level task force of knowledgeable and talented people
from many parts of the company, self-directed work teams
with authority over a particular process or function, or, more
rarely, a team of consultants brought in specifically to help
develop new strategic initiatives
THE COLLABORATIVE OR TEAM APPROACH:
This is a middle approach when by a manager with strategy-
making responsibility enlists the assistance and advice of key
peers and subordinates in hammering out a consensus strategy.
Strategy teams often include line and staff managers from
different disciplines and departmental units, a few handpicked
junior staffers known for their ability to think creatively, and near-
retirement veterans noted for being keen observers, telling it like
it is, and giving sage advice.
THE COLLABORATIVE OR TEAM APPROACH:
Nokia Group, a Finland-based global leader in wireless
telecommunications, involved 250 employees in a strategy
review of how different communications technologies were
converging, how this would affect the company’s business,
and what strategic responses were needed.
THE CORPORATE ENTREPRENEUR APPROACH:
In the corporate entrepreneur approach, top management
encourages individuals and teams to develop and champion
proposals for new product lines and new business ventures.
The idea is to unleash the talents and energies of promising
corporate entrepreneurs, letting them try out business ideas
and pursue new strategic initiatives. Executives serve as
judges of which proposals merit support, give company
entrepreneurs the needed organizational and budgetary
support, and let them run with the ball.
THE CORPORATE ENTREPRENEUR APPROACH:
W.L. Gore & Associates, a privately owned company
famous for its Gore-Tex waterproofing film, is an avid and
highly successful practitioner of the corporate
entrepreneurs approach to strategy making. Gore expects
all employees to initiate improvements and to display
innovativeness.
