Introduction to Strategic Management PDF

Chapter 1: What is strategy? Module Leaders Clement Mwaanga Cell: +260-977-767924 Email:mwaanga.clement@ yahoo.co.uk 2021 What is strategy? ‘Together, the elements of strategy aim to assist an organisation to achieve its long-term aims, which is the essenc...

Chapter 1: What is strategy? Module Leaders Clement Mwaanga Cell: +260-977-767924 Email:mwaanga.clement@ yahoo.co.uk 2021 What is strategy? ‘Together, the elements of strategy aim to assist an organisation to achieve its long-term aims, which is the essence of operating an organisation, whatever its size or nature. The essential question of strategy is: Why do some organisations perform better than others?’ Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia  Definition  Porter (1996) asserts that ‘competitive strategy is about being different. This means that deliberately choosing a different set of activities to deliver a unique mix of value’.  Kay (1993) described strategy of an organization as the match between its internal capabilities and its external relationships. The match between what an organization is particularly capable of doing and its relationship with its stakeholders.  Strategy is simply an outline of how the business intends to achieve its goals  Strategy as a decision-making process is defined as: decisions which have medium-term to long-term impact on the activities of the organisation, including the implementation of those decisions, to create value for customers and key stakeholders and to outperform competitors Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia What does a business strategy look like?  Hypothetical business strategy statement Our strategy is to leverage our know-how in the formulation and manufacture of polymer-based composites, concentrating on geographic areas in Asia where demand is growing and we can provide superior technical support. We seek niche applications in market segments where we can design differentiated products. Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Why have strategies?  A genuine strategy is always needed when the potential actions or responses of intelligent opponents can seriously affect the endeavour’s outcome – regardless of that endeavour’s organisational level in the total enterprise (Mintzberg & Quinn, 1991, p. 6).  Strategies may be looked at as either a priori statements to guide action or a posteriori results of actual decision making (Mintzberg & Quinn, 1991, p. 6). Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia How is strategy managed? }  Information gathering  internal Thinking  external  Information analysis  Strategy formulation Analysis }  Decision making  Implementing Action  Monitoring Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia  Strategic Management  If a strategy allows an organization to match its resources and capabilities to the needs of the external environment in order to achieve competitive advantage, the process of bringing about the strategy is what is called strategic management  Strategic management is concerned with making decisions about an organizations’ future direction and implementing those decisions.  It is about analyzing the situation facing the firm, and on that basis of this analysis formulating a strategy, implementing that strategy and finally evaluation of strategies Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Four essential phases of strategic management process Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Elements of Strategic Management Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Benefits of Strategic Management  Clarity of strategic vision for the organization  Focus on what is strategically important to the organization  Better understanding of the rapidly changing business environment. Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Strategic Position  Where are we now? This is concerned with identifying the impact on strategy of the external environment, an organisation’s strategic capability (resources and competences) and the expectations and influence of stakeholders Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Strategic Choices/Options  How do we get there?  According to Johnson et al (2008), 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.  E.g. diversification moves (entering into new products and markets). As it diversifies, it can also choose the method of either developing the product itself or acquiring the organisation active in that area. Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia  How to judge the relative merits of strategic directions? Suitability  How well does the strategy fit the situation identified by the ‘where are we now?’ analyses?  How well does it match the findings of the SWOT analysis?  How well does it match the culture of the organisation? Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Feasibility:  Is this strategy achievable in resource terms?  Do we have the necessary expertise, technology, access to materials and so on? Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Acceptability:  Will this give the results that the stakeholders want? Is the level of risk acceptable? Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Strategy in Action  This is about ensuring that strategies are working in practice by considering the strategy development process, structuring, resourcing, strategic change and actual practice of strategy. Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Sustainability  Questions arise relating to social and ecological responsibility of business  Can a business be deemed successful and profitable in the long term if it is detrimental to its stakeholders and community? Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Levels of Strategy  Corporate strategy  The portfolio mix of businesses held by a multi-business organisation/corporation.  Corporate level strategy occupies the highest level of strategic decision-making and covers actions dealing with the objective of the firm, acquisition and allocation of resources and coordination of strategies of various SBUs for optimal performance.  Corporate strategy can be defined as the way a company creates value through the configuration and coordination of its multimarket activities. Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Levels of Strategy  Business-level strategy is - applicable in those organizations, which have different businesses- and each business is treated as strategic business unit (SBU).  The fundamental concept in SBU is to identify the discrete independent product/market segments served by an organization.  Since each product/market segment has a distinct environment, a SBU is created for each such segment Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Levels of Strategy  Functional strategy  As is suggested by the title, relates to a single functional operation and the activities involved therein. This deals with decisions according to functional lines such as R&D, marketing, production, finance etc.  Decisions at this level within the organization are often described as tactical. Such decisions are guided and constrained by some overall strategic considerations.  Functional strategy deals with relatively restricted plan providing objectives for specific function, allocation of resources among different operations within that functional area and coordination between them for optimal contribution to the achievement of the SBU and corporate- level objectives Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Levels of Strategy Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia  The importance of values in strategy formulation Internal Environment External Environment Values Stakeholders General Environment Goals Resources & STRATEGY Capabilities Competitive Environment Structure & Processes Strengths & weaknesses Opportunities and Threats Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Gap Analysis The ESC-Gap Model  Hubbard, Pocknee and Taylor’s ESC- Gap analysis model examines the relationships and gaps between Environment, Strategy, Capabilities and performance. Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Components of the ESC-Gap model  The Environment of the organisation  industry environment  macro-environment (all external environment excluding industry)  Business Strategies  an assessment of vision, mission, values and stakeholders  Organisational Capabilities  an assessment of resources and processes of the organisation Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Components of the ESC-Gap model  Performance analysis  How is the business performing relative to:  demands of the environment  capabilities of the organisation  expectations of stakeholders  Gap analysis  The detailed explanation of the performance analysis, highlights shortcomings between expectations and reality Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Components of the ESC-Gap model  Strategic options  What can be done to bridge the gaps  Decision making  Evaluating strategic options and choosing the best option  Implementation  Putting the chosen strategy into action Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Key stakeholders  Stakeholders: ‘individuals or groups which have an interest in the business strategy of the organisation.’  Key stakeholders: ‘individuals or groups which can influence the business strategy of the organisation.’ Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Key stakeholders External Stakeholders Customers Unions Special-Interest Groups Internal Stakeholders Employees Investors Investors Management Board of Directors Creditors Suppliers Government General Public Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Key stakeholders or shareholders?  Value-based management theory  Shareholders only key stakeholders  Aim is to maximise value for shareholders  Behavioural theory of the firm  Variety of stakeholders  Varying degrees of power  Key stakeholders have strategic power  Different types of key stakeholders create different strategies Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Understanding key stakeholders  What do they expect from the organisation?  Why is the organisation important to them?  How important is the organisation to them?  What are their attitudes and values? Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia Stakeholder expectations Key Stakeholders Possible Expectations CEO Short-term profits Prestige Growth Personal power over a large empire Dominant Shareholder Dividends Consistent, reliable growth No surprises Key Customer Favourable buying terms Personal relationship Early information about new products Personal incentives Local Government Jobs Tax revenue R&D Manager Innovative and supportive environment Freedom to carry out own initiatives Table 2.3 Hubbard, Rice, Beamish: Strategic Management 3e © 2008 Pearson Education Australia