STRATEGIC MANAGEMENT AND BUSINESS POLICYTHIRD EDITION

Chapter 1Introduction to strategic management Introduction to strategic management

and business policy

AZHAR KAZMI

Learning objectivesD ib th hi t i l d l t f t t iDescribe the historical development of strategicmanagement and business policy in the world and in IndiaDiscuss the likely future developments in the field ofstrategic management and business policyExplain the concept of strategy and its limitationsDescribe the process of strategic decision makingDescribe the process of strategic decision makingDiscuss the various schools of thought on strategy formationDescribe the strategic management process

2

OverviewWhy do some firms succeed while others fail?– A central objective of strategic management is to learn why this

happens.ppWhat is strategy?– An action a company takes to attain superior performance. In

this context it means allocations of resources. Resources maybe same but if they are combined in different ways some getsuperior performance; some get ordinary performance. StrategicManagement studies the ways to make superior performance.

What is the strategic management process?Th b hi h h t f t t i f th– The process by which managers choose a set of strategies for the enterprise to pursue its vision.

Philosophy What's the use of running if you are not on the right road- German proverbIf you do not know where you come from, you do not know where you stand, if you do not know where you stand, you do not know where you go- Chinese Proverb To run in a right road to reach your destination is strategy.destination is strategy.

Evolution of the Concept of vo u o o e Co cep oStrategic Management

Th d ‘S ’ i i t d f th G k dThe word ‘Strategy’ originated from the Greek word‘Strategia’, means a General or Military CommanderContribution of war on business strategy

‘Attack Strength’ strategy‘Attack Weakness’ strategyBringing change to failing companyBringing change to failing companyConcentration of forcesForging a strategic alliancePatience and timePatience and timeControl the choke-pointA combat-ready company

5

Evolution of strategic management andEvolution of strategic management and business policy

The genesis of strategic management and business policyEvolution based on management practicesHistorical perspectiveHistorical perspectivePointers to the future

6

Hambrick and Fredrickson model of Hambrick and Fredrickson model of strategic management

Internal and External Strategic Analysis

Strategy:ArenasVision and

MissionGoals andObjectives

ArenasVehicles

DifferentiatorsStaging

Economic logic

Implementation Levers and Strategic

Leadership

b k d k “ h ” ( ) d f

7

D. C. Hambrick & J. W. Fredrickson: “Are you sure you have a strategy?” (2001). Academy of Management Executive Vol. 15, No. 4, pp. 48-59

Strategy Diamond

8

The Five Major Elements of StrategyThe Five Major Elements of Strategy

Arenas – “Where will we be active and with how much emphasis?”:Arenas Where will we be active and with how much emphasis? :Which core technologies?Which geographic areas?Which market segments?Which product categories?Which value-creation stages?

Vehicles – “How will we get there?”A i i i ?Acquisitions?Joint ventures?Internal development?Licensing/franchising?Licensing/franchising?

Differentiation – “How will we win?”Customization?Image?Price?Product reliability? 9

h ill b d d fStaging – “What will be our speed and sequence of moves?”Speed of expansion?Speed of initiatives?Speed of initiatives?

Economic LogicEconomic logic answers the question, “How will we obtain ourEconomic logic answers the question, How will we obtain our

returns?”Lowest costs through scale advantages?Lowest costs through scope and replication advantages?Premium prices due to unmatchable service?P i i d t i t d t f t ?Premium prices due to proprietary product features?

10

Thinking Strategically:Thinking Strategically:The Three Big Strategic Questions

1. Where are we now?

2. Where do we want to go?g

Business(es) to be in and market positions to stake out

Buyer needs and groups to serve

Outcomes to achieve

3. How will we get there?

A ’ “hA company’s answer to “how will we get there?” is its strategy

What Is Strategy?Consists of the combination of competitive moves and business approaches used by managers to run the companymanagers to run the company

Management’s “game plan” toAttract and please customers

Stake out a market position

Compete successfully

Grow the business

Achieve targeted objectives

The Hows ThatThe Hows That

l

Define a Firm's Strategy Define a Firm's Strategy How to please customers

How to respond to changing Strategymarket conditions

How to outcompete rivals

is HOWto . . .

How to grow the business

How to manage each functional piece of the business andHow to manage each functional piece of the business and develop needed organizational capabilities

How to achieve strategic and financial objectivesHow to achieve strategic and financial objectives

The Indian scenarioRole of IIMs and ASCIRole of AICTERole of AIMSRole of AIMARole of AIMAIndia-focused international studiesStrategic Management Forum of IndiaPublications

14

Business policy definedBusiness policy, as defined by Christensen andothers, is "the study of the function andresponsibilities of senior management, thecrucial problems that affect success in thet t l t i d th d i i th ttotal enterprise, and the decisions thatdetermine the direction of the organisationand shape its futureand shape its future.

15

The concept of strategyA strategy could be:

plan or course of action or a set of decision rules making a pattern orcreating a common thread;th tt th d l t d t th i ti ' ti itithe pattern or common thread related to the organisation's activitieswhich are derived from the policies, objectives and goals;related to pursuing those activities which move an organisation from itscurrent position to a desired future state;p ;concerned with the resources necessary for implementing a plan orfollowing a course of action; andconnected to the strategic positioning of a firm, making trade-offsbetween its different activities and creating a fit among these activitiesbetween its different activities, and creating a fit among these activities.the planned or actual coordination of the firm's major goals andactions, in time and space that continuously co-align the firm with itsenvironment.

16

Levels at which strategy operates

Corporate Office

LEVELS OF MANAGEMENT LEVELS OF STRATEGY

CORPORATE CORPORATE-LEVEL

SBUA

SBUB

CO O V

SBU BUSINESS-LEVELSBU

C

Finance Marketing Operations HRM Information

FUNCTIONAL FUNCTIONAL-LEVEL

17

Components of Strategic ManagementVisionCompany Mission

Annual objectivesGrand Strategy

Company ProfileExternal Environment

Functional and Operational Strategies

Strategic analysis andchoice

PoliciesInstitutionalizing the

Long-term objectives strategyControl and evaluation

18

Steps for Making Strategic DecisionsFormulate

theCompany’s

Mission

Develop ACompanyProfile

Assessing theCompany’sExternal

Environment

Analyze theCompany’sOptions

Mission

Identify Most Identify Most Desirable

Option

Select a set of Long-term

Objectives andGrand Strategies

DevelopAnnual

Objectives andShort-term

Implement

StrategiesEvaluating the Success of the

Strategies

19

StrategiesStrategies

Strategic decision-makingObjectives to be achieved are determined;Alternative ways of achieving the objectivesy g jare identified;Each alternative is evaluated in terms of itsEach alternative is evaluated in terms of itsobjective-achieving ability; andThe best alternative is chosenThe best alternative is chosen.

20

Issues in strategic decision-making

Criteria for decision-makingRationality in decision-makingy gCreativity in decision-makingVariability in decision-makingVariability in decision-makingPerson-related factors in decision-makingIndividual versus group decision-making.

21

Schools of thought onSchools of thought on strategy formation

The prescriptive schoolsDesign school where strategy formation is the process of conception.Developed in late 1950’s Here the strategy is seen as somethingDeveloped in late 1950 s. Here the strategy is seen as somethingunique and which is in the form of planned perspective. Strategyformation is simple and informal, based on judgement andthinking.gPlanning school where strategy formation is a formal process.Developed in 1960’s. Plan divided into sub-strategies andprogrammes. Formal & deliberate.p gPositioning school where strategy formation is an analyticalprocess. Developed in 1970’s and 1980’s. Analytical systematic &deliberate

22

The descriptive schoolspEntrepreneurial school where strategy formation is a visionaryprocess. Developed in late 1950’s. Intuitive, visionary and largelydeliberate.deliberate.Cognitive school where strategy formation is a mental process.Developed in late 1950’s. It is the outcome of mental perspective.The learning school where strategy formation is a emergent processThe learning school where strategy formation is a emergent process.Developed in late 1950’s.The power school where strategy formation is a negotiation process.Developed during 1970’s & 1980’s Its formation is messy consistingDeveloped during 1970 s & 1980 s. Its formation is messy, consistingof conflict, aggression and cooperation.The Cultural school which perceives strategy formation as a collectiveprocess developed in 1960’s Its formation is ideological constrainedprocess, developed in 1960 s. Its formation is ideological, constrained,collective and deliberate.The Environmental school which perceives strategy formation as areactive process developed in 1960’s and 1970’s Strategy formation isreactive process, developed in 1960 s and 1970 s. Strategy formation isa emergent process.

23

The integrative schoolThe Configuration school which perceivesg pstrategy formation as a transformation process,developed in 1960’s & 1970’s. Strategyformation is a integrative, episodic andsequential.

24

Strategic management definedStrategic management is defined as thedynamic process of formulation,implementation, evaluation and control ofstrategies to realise the organization’sstrategic intent.

25

Four phases in strategic management

Formulation of Implementation of StrategicEstablishment of

strategicstrategies

pstrategies evaluationintent

Strategic controlStrategic control

26

Comprehensive model of strategicComprehensive model of strategic management

Strategy Formulation

Environmental OrganisationalAppraisal Appraisal

Strategic Intent

VisionMission

Strategy Implementation

Project

Strategic Evaluation

SWOT AnalysisCorporate-level StrategiesBusiness-level Strategies

Strategic analysis and choiceStrategic plan

Business definitionBusiness model

Objectives

ProjectProcedural

Resource allocationStructural

BehaviouralFunctional & Operational

Strategic control

27

28

Dr. Sunil Patel