Mastering Strategy: Art and Science - Lecture Notes (PDF)

Mastering Strategic Management, v3.0 Dave Ketchen & Jeremy Short CHAPTER 1 Mastering Strategy: Art and Science  Chapter Agenda After this lecture, you should be able to understand and articulate answers to the following questions: 1. What are strategic management and strategy? 2. Why does s...

Mastering Strategic Management, v3.0 Dave Ketchen & Jeremy Short CHAPTER 1 Mastering Strategy: Art and Science  Chapter Agenda After this lecture, you should be able to understand and articulate answers to the following questions: 1. What are strategic management and strategy? 2. Why does strategic management matter? 3. What elements determine company performance?  Defining Strategic Management and Strategy Learning Objectives 1. Learn what strategic management is. 2. Understand the key question addressed by strategic management. 3. Understand why it is valuable to consider different definitions of strategy. 4. Learn what is meant by each of the 5 Ps of strategy.  What Is Strategic Management? Strategic management: Examines how actions and events involving top executives, companies, and industries influence a company’s success or failure. Helps answer the key question: “Why do some companies outperform other companies?” Formal tools exist for understanding these relationships. Creativity is just as important to strategic management Mastering strategy is part art and part science. Strategy is a complex concept that involves many different processes and activities within an organization.  Defining Strategy: The Five Ps Strategic plan: A strategic plan is a carefully crafted set of steps that a company intends to follow in order to be successful. Business model: A business model describes the process through which a company hopes to earn profits. Economies of scale: A cost advantage that is created when a company can produce a good or service at a lower per unit price due to producing the good or service in large quantities. Strategic ploy: A strategic ploy is a specific move designed to outwit or trick competitors. Strategy as pattern: Strategy as pattern focuses on the extent to which a company’s actions over time are consistent. Strategy as position: Strategy as position refers to a company’s place in the industry relative to its competitors. Strategy as perspective: Strategy as perspective refers to how executives interpret the competitive landscape around them.  Research Round-Up: Does Planning Make Money? One study of 11000 small companies found that planning provides small companies with substantial performance improvements. All companies do not benefit equally. Small companies located in countries whose citizens cope well with uncertainty benefit more from planning than small companies located in countries whose citizens often try to avoid uncertainty. This is potentially because one group is more willing to adjust their plans as time goes on.  Small Business Spotlight: Should Foreign Car Specialties Expand Its Strategic Position? Jeff Lock’s small business, Foreign Car Specialties, was established in the 1970s. Position: Focus was on high-end restoration, repair, and customization of vintage British motor cars. Jeff’s daughter wondered if focus should be expanded. Most owners of classic British cars are over fifty years old and moving closer to retirement Many classic car fans in their twenties and thirties prefer Japanese cars from the 1970s and 1980s over European cars. This would be a dramatic change, because the Source: Vladimir Sazonov/Shutterstock.com underlying technology and construction of the two categories of cars are quite different. Jeff already has his hands full with British car owners who are willing to pay big money for top-shelf work.  Intended, Emergent, and Realized Strategies Learning Objectives 1. Learn what is meant by intended and emergent strategies and the differences between them. 2. Understand realized strategies and how they are influenced by intended, deliberate, and emergent strategies. Figure 1.2: Strategic Planning and Learning: Intended, Emergent, and Realized Strategies Source: Shutterstock.com  Intended and Emergent Strategies Intended strategy: The strategy that an organization hopes to execute. Described in detail within an organization’s strategic plan. When a strategic plan is created for a new venture, it is called a business plan. Emergent strategy: An unplanned strategy that arises in response to unexpected opportunities and challenges. These strategies can sometimes result in disasters, but they can also lead to tremendous success.  Realized Strategy Realized strategy: The strategy that an organization actually follows. A product of a company’s intended strategy, the company’s deliberate strategy, and its emergent strategy. Nonrealized strategy: Refers to the parts of the intended strategy that are abandoned. Source: Brenda Quintero/Shutterstock.com  Strategy at the Movies: The Social Network Mark Zuckerberg created a website called “FaceMash” where the attractiveness of young women could be voted on. “FaceMash” evolved first into an online social network called TheFacebook that was for Harvard students only. When the network became surprisingly popular, it then morphed into Facebook, a website open to everyone. Ironically, Facebook’s emphasis on connecting with existing and new friends is about as different as it could be from Zuckerberg’s original concept.  Figure 1.3: A Model of Intended, Deliberate, and Realized Strategy Source: Reproduced with permission from Bauer, T., Erdogan, B., & J. Short, 2021. Principles of Management. Boston: FlatWorld.  The History of Strategic Management Learning Objectives 1. Consider how strategy in ancient times and military strategy can provide insights to businesses. 2. Describe how strategic management has evolved into a field of study.  Strategy in Ancient Times The earliest known discussion of strategy is offered in the Old Testament. In ancient China, strategist and philosopher Sun Tzu offered thoughts on strategy, emphasizing the creative and deceptive aspects of strategy. Most famous example of strategy in ancient times revolves around the Trojan Horse. In modern times, the term Trojan horse refers to gestures that appear on the surface to be beneficial to the recipient but that mask a sinister intent. King Arthur and his Knights of the Round Table involves the concept of mission.  Lessons Offered by Military Strategy The word strategy has its roots in warfare. Greek verb strategos means “army leader” and the idea of stratego (from which we get the word strategy) refers to defeating an enemy by effectively using resources. Niccolò Machiavelli’s 1532 book The Prince is regarded as an insightful guide for conquering and ruling territories and offers clever recipes for success to government leaders. Wars also provide important lessons about strategic management: American Revolutionary War Civil War World War II An organization should not make assumptions about what its adversary can and cannot do.  Figure 1.6: The Modern History of Strategic Management Source: Shutterstock.com; AevanStock Shutterstock.com; Keith Homan/Shutterstock.com; PhotographerIncognito/Shutterstock.com; Ivica Drusany/Shutterstock.comStrategy at the Movies  Figure 1.6: The Modern History of Strategic Management (cont’d) Source: Shutterstock.com; AevanStock Shutterstock.com; Keith Homan/Shutterstock.com; PhotographerIncognito/Shutterstock.com; Ivica Drusany/Shutterstock.comStrategy at the Movies  Figure 1.6: The Modern History of Strategic Management (cont’d) Source: Shutterstock.com; AevanStock Shutterstock.com; Keith Homan/Shutterstock.com; PhotographerIncognito/Shutterstock.com; Ivica Drusany/Shutterstock.comStrategy at the Movies  Understanding the Strategic Management Process Learning Objectives 1. Learn the strategic management process. 2. Understand the four steps in the strategic management process. Figure 1.7: Overall Model of the Strategic Management Process  Top-Shelf Reading: Zen and the Art of Motorcycle Maintenance Zen and the Art of Motorcycle Maintenance uses the storyline of the narrator overcoming the challenges of navigating a motorcycle trip to parallel the myriad challenges associated with managers seeking to improve their companies. The plot devices in this book align with research in strategic management suggesting that CEOs often prefer to prioritize gut instincts over objective data, and perhaps simply hope for good luck, even in the face of major strategic decisions such as a potential merger. A key theme of the book is the balance between a romantic perspective that values more superficial elements with a contrasting classic perspective that views life from a more analytical approach.  Chapter Summary This chapter provides an overview of strategic management and strategy. Ideas about strategy span many centuries, and modern understanding of strategy borrows from ancient strategies as well as classic militaries strategies. There are numerous ways to conceptualize the idea of strategy and that effective strategic management is needed to ensure the long-term success of companies. The study of strategic management provides tools to effectively manage organizations, but it also involves the art of knowing how and when to apply creative thinking. Knowledge of both the art and the science of strategic management is needed to help guide organizations as their strategies emerge and evolve over time. These tools will also help you effectively chart a course for your career as well as to understand the effective strategic management of the organizations for which you will work.