An Introduction

                                                                                                                      

                                      

Strategic Management

The Success MANTRA

1. Be Audicious in your vision-

• CAPITAL IS NOT SCARCE VISION IS

2. Good Governance makes business sense

3. Develop Leaders from within

The Success MANTRA

4. Pursue Quality with Zeal

5. Innovate to create value for customers

6.Forge stronger partnership with your supplier base

The Success MANTRA

7. Trim flab to achieve operational Excellence

8. Give back to the society

(CSR AND SUSTAINABLE DEVELOPMENT)

“Somehow there are organizations that effectively manage change, continuously adapting their bureaucracies, strategies, systems, products,

services and cultures to survive the shocks and prosper from the forces that decimate others . . .

they are the masters of what I callrenewal.”

Robert H. Waterman, Jr.The Renewal Factor

Strategic management is a set of

managerial decisionsand actions aimed at

the generation of sustainable competitive advantage.

SUSTAINABLE COMPETITIVE ADVANTAGE

"A firm is said to have a sustained advantage when it is implementing a

value creating strategy not simultaneously being implemented by

any current or potential competitors and when these other firms are unable

to duplicate the benefits of this strategy”

SUSTAINABLE COMPETITIVE ADVANTAGE

Hall (1980) "Survival Strategies in a Hostile Environment" --

Successful companies will achieve either the lowest cost or most differentiated position.

Henderson (1983) "The Anatomy of Competition" --

Those who can adapt best or fastest gain an advantage over competitors in a Hostile Environment

SUSTAINABLE COMPETITIVE ADVANTAGE

• customer orientation

• Porter’s "value chain" approach

• Business networks consist of multiple relationships, with each participating firm gaining the resources needed to build core competencies and obtain an SCA.

Two Approaches To Strategic Management

• The Prescriptive Approach

And

• The Emergent Approach.

Prescriptive Approach Strategy As Design

The view that strategy development can be a logical process in which economic forces and constraints on the organisation are weighed carefully through analytic and evaluative techniques to establish clear strategic direction and in turn carefully planned in its implementation is perhaps the most commonly held view about how strategy is developed and what managing strategy is about. It is usually associated with the notion that it is top management’s responsibility to do this and that top management lead the development of strategy in organisations.

• Kenneth Andrews at Harvard

Strategy As Design

• He has dealt with what the firm might do (market opportunities and threats) and what the firm should do (social responsibility) and coupled these external issues to the internal ones of what the firm could do (corporate competence-strength and weakness) and what the firm wants to do (ambition), thus suggesting a “fit” between environment and organization.

• SWOT ANALYSIS• PEST Analysis

Strategy As Design

• In 1960s, the publication of Strategy and Structure: Chapters in the History of the American Industrial

Enterprise by renowned US management expert Alfred D. Chandler pioneered the study of corporate strategic

problems. • Chandler analyses the interaction between the

environment, strategies and the organization and comes up with the viewpoint of “structure follows strategy”.

• He believes that a company’s operational strategies must be adaptive to the environment i.e. to fulfill market demands, and the organizational structure must be adaptive to the company’s strategies by changing constantly with the strategies.

Strategy As Planning

• strategy structure is a controlled, purposed formal planning process. The senior manager is responsible for the whole process of the planning, while the staff laying out and implementing the plan all need to report to the senior manager. The established strategies should be carried out through breaking down the goals, projects and budgets.

“corporate strategy”,

Igor Ansoff

“the way that an organization plans to realize its goals and missions, including the formulation and evaluation of all kinds of proposals, and the final proposal to be implemented.”

The Summary

(1)The starting point of corporate strategies is to adapt to the environment, which is beyond the control of the corporate. A corporate cannot survive and grow unless it adapts to the environment;

(2)The strategic goal of a corporate is to achieve a larger market share. The strategies should be responsive to the changing environment, meet market demands and grab enough market shares to survive and grow better;

(3)The implementation of strategies requires the organization structure to be adjusted accordingly.

Basic Model of Strategic Management

Four Basic Elements Of

Strategic Management

The Emergent Approach.Strategy As Ideas

This lens emphasises more the potential variety and diversity which exists in organisations and which can potentially generate novelty. Here strategy is not so much seen as planned from the top but emergent from within and around the organisation as people cope with an uncertain and changing environment in their day-to-day activities. New ideas will emerge; but they are likely to have to battle for survival against the forces for conformity to past strategies that the experience lens explains.

MINTZBERG’ S 5 P’s of Strategy

Environmental Scanning

• Doing a situation analysis, both micro-environmental and macro-environmental

• Socio-Economic

• Political-Legal

• Technological

Environmental Scanning

• Information revolution• Technological advances

and breakthroughs• Globalization

The New Business Environment

Drivers of the NewBusiness Environment

Implications• Continual turbulence and change• Reduced need for physical assets• Vanishing distance/compressed time• Decreased vulnerability

Critical Success Factors• Ability to embrace change• Creativity and innovation

capabilities• Being a world-class organization

Drivers of the NewBusiness Environment

Drivers of the New Business Environment

The Information Revolution• Information readily available• Information as the essential resource of production

Technological Advances and Breakthroughs• Perform tasks with equipment, materials, knowledge,

and experience• Five major technological trends

Drivers of the New Business Environment

Technology is starting to pay back with real savings and real productivity gains Innovations are increasingly being commercialized There is an increasing dependence on information and knowledge Technology, especially information technology, is creating deep structural transformations in the economy

Network capabilities mean everything is connectedDigital technology is making businesses smarterDigital technology has helped create completely new sub-industriesThe economy is becoming a “bottom-up” economy

Great companies are pioneers and leaders in applying technology

Drivers of the New Business Environment

Globalization• Specific ways global factors impact

– Global marketplace

– Global competitors

• Globalization– Solves customer needs

– Segments markets on a global basis

Strategy Formulation

• Doing a situation analysis: both internal and external; both micro-environmental and macro-environmental.

• Concurrent with this assessment, objectives are set. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.

• These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives.

• This three-step strategy formulation process is sometimes referred to as determining where you are now, determining where you want to go, and then determining how to get there. These three questions are the essence of strategic planning. SWOT Analysis: I/O Economics for the external factors and RBV for the internal factors.

VisionVision

Vision is a short and inspiring statement of what the organization intends to become and to achieve at some point in the future, often stated in competitive terms. Vision refers to the category of intentions that are broad, all-intrusive and forward-thinking.  It is the image that a business must have of its goals before it sets out to reach them. It describes aspirations for the future, without specifying the means that will be used to achieve those desired ends.

Strategic Intent

• A strategic intent is a company's vision of what it wants to achieve in the long term. It must convey a significant stretch for your company, a sense of direction, discovery, and opportunity that can be communicated as worthwhile to all employees. It should not focus so much on today's problems but rather on tomorrow's opportunities.

Strategic Stretch

• A) The fit between the organisation and its environment.

• B) Creating new opportunities by stretching and exploiting capabilities in new ways.

• C) The skills of the senior management.

• D) Utilising all the resources of an organisation to their full capacity.

Mission Statement

• A mission statement is an organization's vision translated into written form. It makes concrete the leader's view of the direction and purpose of the organization. For many corporate leaders it is a vital element in any attempt to motivate employees and to give them a sense of priorities

Strategic Choice

• Constructing Organizational Scenarios:– Steps in constructing scenarios –

1. Use industry scenarios

2. Develop common-size financial statements

3. Construct detailed pro forma financial statements for each alternative that forecast effects on return on investment

Projections

Last Historical Trend 19— 19— 19—

Factor Year Average Analysis O P ML O P ML O P ML Comments

GDP

CPI

Other

Sales units

Dollars

COGS

Advertising & marketing

Interest expense

Plant expansion

Dividends

Net profits

EPS

ROI

ROE

Other

Scenario Box to Generate Pro Forma Statements

Strategic Choice

• Attitude Toward Risk:– Risk is composed of:

• Amount of assets committed

• Length of time of asset commitment

Strategic Choice

• Pressures from Stakeholders1. How will this decision affect each

stakeholder, especially those given high and medium priority?

2. How much of what each stakeholder wants are they likely to get under this alternative?

3. What are they likely to do if they don’t get what they want?

4. What is the probability that they will do it?

Strategic Choice

• Pressures from Organizational Culture– If a strategy is incompatible with the

organizational culture, the likelihood of its success is very low.

– Foot-dragging and even sabotage will result as employees fight to resist a radical change in organizational philosophy.

Strategic Choice

• Process of Strategic Choice:– The evaluation of alternative strategies and

selection of the best alternative• Not based on consensus• Discussion, disagreement• Programmed conflict

Strategy As Experience:

• The view is that future strategies of organisations are based on the adaptation of past strategies influenced by the experience of managers and others in the organisation; and are taken for granted assumptions and ways of doing things embedded in the cultural processes of organisations. In so far as different views and expectations exist, they will be resolved, not just through rational analytic processes, but through processes of bargaining and negotiation. Here, then, the view is that there is a tendency for the strategy of the organisation to build on and be a continuation of what has gone before

Strategic Choice

• Process of Strategic Choice:– Devil’s Advocate

• Identify potential pitfalls and problems with a proposed alternative strategy in a formal presentation.

Strategic Choice

• Process of Strategic Choice:– Dialectical Inquiry

• Two proposals are generated using different assumptions for each alternative strategy

Strategy Implementation

• Allocation of sufficient resources (financial, personnel, time, technology support)

• Establishing a chain of command or some alternative structure (such as cross functional teams)

• Assigning responsibility of specific tasks or processes to specific individuals or groups

• When implementing specific programs, this involves acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with (and/or conversion from) legacy processes.

Strategic Evaluation

It involves managing the process

•monitoring results

•comparing to benchmarks and best practices

• evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary.

Prescriptive Strategic Process: Limitations

Mintzberg (1990) identifies a number of major difficulties with the prescriptive strategic process:

• The future can be predicted accurately enough to make rational discussion and choice realistic. However, as soon as a competitor or a government does something unexpected the whole process may be invalidated.

• It is possible and better to forgo the short-term benefit in order to obtain long-term good. This may be incorrect: it may not be possible to determine the long-term good and, even if it were, those involved may not be willing to make the sacrifice, such as jobs or investment. This is particularly relevant within local government, which is shaped by direct democratic control at a local level.

• The strategies proposed are, in practice, logical and capable of being managed in the way proposed. Given the political realities of many organisations, there may be many difficulties in practice.

Prescriptive Strategic Process: Limitations

• The chief executive has the knowledge and power to choose between options. He does not need to persuade anyone, or compromise on his decisions. This may be extraordinarily naïve in many organisations where the culture and leadership seek discussion as a matter of normal practice.

• After careful analysis, strategy decisions can be clearly specified, summarised, and presented; they do not require further development, nor do they need to be altered because circumstances outside the organisation have changed. This point may have some validity but is not always valid.

• Implementation is a separate and distinctive phase that only comes after a strategy has been agreed: for example, a strategy to close a factory merely required a management decision and then it just happens. This is extraordinarily simplistic in many complex strategic decisions.

The Emergent Approach. The Evolutionary School

• Within the evolutionary school, commentators Mintzberg, 1990) argue that fully-fledged strategies rarely exist, with strategic decisions seldom the result of planned moves. Moreover, their empirical research has shown that the assumption that strategies are logical and rational is flawed; they do not take into account the reality of managerial decision making.

Mintzberg's 5 Ps for Strategy

The word "strategy" has been used implicitly in different ways even if it has traditionally been defined in only one. Explicit recognition of multiple definitions can help people to manoeuvre through this difficult field. Mintzberg provides five definitions of strategy:

• Plan• Ploy• Pattern• Position• Perspective

Mintzberg's 5 Ps for StrategyPlan

Strategy is a plan - some sort of consciously intended course of action, a guideline (or set of guidelines) to deal with a situation. By this definition strategies have two essential

characteristics: they are made in advance of the actions to which they apply, and they are developed consciously and purposefully

Pattern• If strategies can be intended (whether as

general plans or specific ploys), they can also be realised. In other words, defining strategy as plan is not sufficient; we also need a definition that encompasses the resulting behaviour: Strategy is a pattern - specifically, a pattern in a stream of actions. Strategy is consistency in behaviour, whether or not intended. The definitions of strategy as plan and pattern can be quite independent of one another: plans may go unrealised, while patterns may appear without preconception.

Position• Strategy is a position - specifically a

means of locating an organisation in an "environment". By this definition strategy becomes the mediating force, or "match", between organisation and environment, that is, between the internal and the external context.

Perspective• Strategy is a perspective - its content

consisting not just of a chosen position, but of an ingrained way of perceiving the world. Strategy in this respect is to the organisation what personality is to the individual. What is of key importance is that strategy is a perspective shared by members of an organisation, through their intentions and / or by their actions. In effect, when we talk of strategy in this context, we are entering the realm of the collective mind - individuals united by common thinking and / or behaviour.

Ploy• As plan, a strategy can be a ploy too,

really just a specific manoeuvre intended to outwit an opponent or competitor.

Emergent Strategy

• An emergent strategy is a pattern of action that develops over time in an organization in the absence of a specific mission and goals, or despite a mission and goals.

• Emergent strategy is sometimes called realized strategy. An emergent strategy or realized strategy differs from an intended strategy.

• Mintzberg argues that strategy emerges over time as intentions collide with and accommodate a changing reality.

Emergent Strategy

• Emergent strategy is a set of actions, or behavior, consistent over time, "a realized pattern [that] was not expressly intended" in the original planning of strategy. When a deliberate strategy is realized, the result matches the intended course of action. An emergent strategy develops when an organization takes a series of actions that with time turn into a consistent pattern of behavior, regardless of specific intentions. "

What is the role of strategic management in the knowledge

organisation?  • As we have entered into a dramatic restructuring of the global economy in which knowledge organisations serve knowledge-intensive industries, which in turn create, or are encouraged by the knowledge economy.    

• The approach to strategic management of the organisations, industries and economies where knowledge is both an enabler and goal is almost completely at variance to older ‘planning’ and positioning approaches, rooted as they were in a neo-classical production function view of the firm in a perfect competition, mass production industry paradigm.“

Major Inferences• Top management cannot know, understand or plan the future.• Management needs to encourage new ideas and be aware of the

external environment• Encourage social interaction.• Ideas within an organisation are less likely to be developed

through formal analysis and more likely to be developed by a reliance on pattern recognition based on experience and intuition

• Adaptive tension is inevitable within an organisation• Strategic management is about identifying order as it emerges

rather than directing the order• Others say the role of top management is to ensure adaptive

tension exists