Business Strategy 2024/2025 PDF

BUSINESS STRATEGY Sandra RAMOS 2024/2025 INTRODUCING STRATEGY DEFINITIONS 3 DEFINITIONS Essential elements, yet different: Chandler emphasises a logical flow from the determination of goals and objectives to the allocation of resources. Porter focuses on...

BUSINESS STRATEGY Sandra RAMOS 2024/2025 INTRODUCING STRATEGY DEFINITIONS 3 DEFINITIONS Essential elements, yet different: Chandler emphasises a logical flow from the determination of goals and objectives to the allocation of resources. Porter focuses on deliberate choices, difference and competition. Drucker suggests that it is a theory about how a firm will win. Mintzberg takes the view that strategy is less certain and uses the word ‘pattern’ to allow for the fact that strategies do not always follow a deliberately chosen and logical plan, but can emerge in more ad hoc ways. 4 DEFINITIONS Three elements: Long-term. Strategies are typically measured over years, for some organisations a decade or more. (See the ‘three horizons’ framework in the next slide). Strategic Direction. Over the years, strategies follow a form of long- term orientation or trajectory. Sometimes they only emerge in a coherent way after some time. Organisation. Organisations are not treated as discrete, unified entities. Organisations involve complex internal and external relationships with multiple stakeholders. 5 DEFINITIONS Long term orientation, it has two advantages: 1. Can include both deliberate, rational decisions and more emergent, incremental aspects. 2. Can be based on the search for a competitive advantage, but also on cooperation or even imitation. 6 THREE HORIZONS FRAMEWORK Note: Profit on the vertical axis can be replaced by non-profit objectives; ‘business’ can refer to any set of activities; ‘time’can refer to a varying number of years. Source: M. Baghai, S. Coley et D. White, The Alchemy of Growth, 2000, Texere Publishers, p. S. DEFINITIONS 7 DEFINITIONS Across the previous mentioned three elements, strategic decisions have distinctive characteristics: Gaining competitive advantage: Create additional value for customers → with an offer for which they are prepared to pay more than the cost. This value creation system - the business model - must be difficult for competitors to imitate. If a company has the same strategy as its competitors, it has no strategy. 8 DEFINITIONS Allocation of resources: financial, human, physical, technological, commercial or relational. To deploy a strategy, the strategist needs to allocate the most appropriate mix of resources to the most promising activities. The strategist must commit to his decisions, and a strategy is above all manifested in decisions that are difficult to reverse. If a company changes its strategy every six months, it has no strategy. 9 VIP MODEL Value Imitation Perimeter On what value creation model How can we avoid What should be the perimeter is the organisation's competitors imitating this of this value creation model? performance based (what model of value creation? In What to do, what not to do, business model is used)? order to ensure the long-term which markets, along which survival of your competitive value chain? advantage? 10 THE PURPOSE OF STRATEGY: MISSION, VISION, VALUES AND OBJECTIVES Strategists must be able to define and express a clear and motivating purpose. Without a clear purpose, the strategy chosen remains hollow for those who are supposed to apply or analyse it. Organisations stated purpose must answer: how does the organisation make a difference; and for whom does the organisation make that difference? If the stakeholders can relate to such a purpose it can be highly motivating. 11 THE PURPOSE OF STRATEGY: MISSION, VISION, VALUES AND OBJECTIVES Mission Statement Aims to provide employees and stakeholders with clarity about what the organisation is fundamentally there to do. What business are we in? How do we make a difference? 12 THE PURPOSE OF STRATEGY: MISSION, VISION, VALUES AND OBJECTIVES Vision Statement It is concerned with the future the organisation seeks to create. Aims to draw a picture of the future that is capable of involving and motivating people. What do we want to achieve? 13 THE PURPOSE OF STRATEGY: MISSION, VISION, VALUES AND OBJECTIVES Statements of corporate values Communicate the underlying and enduring core ‘principles’ that guide an organisation’s strategy and define the way that the organisation should operate. These values must be enduring. However, they are likely to change with circumstances. 14 THE PURPOSE OF STRATEGY: MISSION, VISION, VALUES AND OBJECTIVES Objectives Are statements of specific outcomes that are to be achieved. These are often expressed in precise financial terms (example: the level of sales, profits or share valuation in one, two or three years’ time). Organisations may also have quantifiable market-based objectives (example: market share, customer service, repeat business). Triple bottom-line → economical, environmental and social objectives. 15 STRATEGY STATEMENTS Entrepreneurs and managers should be able to summarise their organisation’s strategy with a strategy statement. It should have three main themes: 1. The fundamental goals (mission, vision, objectives). 2. The scope or domain of organisation’s activities. 3. The advantages or capabilities it has to deliver all of these. 16 STRATEGY STATEMENTS Scope Advantage Customers or clients; geographical Describes how the organisation intends location; and extent of internal activities to achieve the objectives it has set itself, (‘vertical integration’). and therefore what distinguishes it from its competitors in terms of activities, skills and know-how, enabling it to offer added value to its customers or users. 17 STRATEGY STATEMENTS IKEA example: To create a better everyday life for the many people [by offering] a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. 18 STRATEGY STATEMENTS Strategy statements are not always achieved; As circumstances can change unexpectedly. However it: provides a valuable guide for managers in their day-to-day decisions; allows observers to better understand the general direction of the organisation. The ability to give a clear strategy statement is a good test of managerial competence in an organisation. 19 STRATEGY STATEMENTS Strategy statements are relevant to a wide range of organisations. Examples: A small entrepreneurial start-up can use a strategy statement to persuade investors and lenders of its viability. Public-sector organisations need strategy statements not only for themselves, but to reassure clients, funders and regulators that their priorities are the right ones. Voluntary organisations need persuasive strategy statements in order to inspire volunteers and donors. 20 LEVELS OF STRATEGY 1st LEVEL: CORPORATE STRATEGY Concerns with the overall scope of an organisation and how value is added to the constituent businesses of the organisational whole. It includes geographical scope, diversity of products or services, acquisitions of new businesses, and how resources are allocated between the different elements of the organisation. 21 LEVELS OF STRATEGY 2nd LEVEL: BUSINESS-LEVEL STRATEGY It is about how the individual businesses should compete in their particular markets (this is often called ‘competitive strategy’). These might be stand-alone businesses, for instance entrepreneurial start-ups, or ‘business units’ within a larger corporation. Business-level strategy typically concerns issues such as innovation, appropriate scale and response to competitors’ moves. 22 LEVELS OF STRATEGY 3rd LEVEL: FUNCTIONAL STRATEGIES It is concerned with how the components of an organisation deliver effectively the corporate- and business-level strategies in terms of resources, processes and people. 23 THE EXPLORING STRATEGY FRAMEWORK 24 THE EXPLORING STRATEGY FRAMEWORK Strategic Position is concerned with the impact on strategy of the macro-environment, the industry environment, the organisation’s strategic capability (resources and competences), the organisation’s stakeholders and the organisation’s culture. Strategic choices involve the options for strategy in terms of both the directions in which strategy might move and the methods by which strategy might be pursued. Strategy in action is about how strategies are formed and how they are implemented. 25 HANDBOOK Johnson, G., Whittington, R., Scholes, K., Angwin, D., & Regner, P. (2017). Exploring Strategy - Text and Cases (11th ed.). Pearson Education. 26