Strategic Management Lecture

STRATEGIC MANAGEMENT Dr. John Lampogo 1  The External The Strategic Management Environment Analysis...

STRATEGIC MANAGEMENT Dr. John Lampogo 1  The External The Strategic Management Environment Analysis Vision & Mission The Internal Environment Process Strategy Formulation Strategy Implementation Functional- Strategy Corporate- Business-Level Organizational Level Strategy Corporate Level Strategy Strategy Structure and Governance Controls Strategic Leadership Performance Strategic Competitiveness Above-Average Returns 2 Feedback What is Strategy A company’s strategy is the game plan management is using to stake out market position, conduct its operations, attract and please customers, compete successfully and achieve organisational objectives. A strategy entails managerial choices among alternatives and signals organizational commitment to specific markets, competitive approaches and ways of operating. 3 Strategy Crafting and Strategy Execution A good strategy and a good strategy execution are the trustworthy signs of good management.  Excellent execution of an excellent strategy is the best test of managerial excellence – and the most reliable recipe for organizational success. 4 Five Tasks of Strategic Management 1. Developing a Strategic Vision and Business Mission 2. Setting Objectives 3. Crafting Strategies to achieve objectives 4. Implementing and Executing Strategy 5. Evaluating Performance, Monitoring new Developments and Initiating Corrective Measures/Adjustments 5 Five Tasks of Strategic Management 6 Strategic Management Basic Concept  Strategicmanagement refers to the managerial process of forming a strategic vision, setting objectives, crafting a strategy, implementing and executing the strategy and then over time indicating whatever corrective adjustments in the vision, objectives, strategy and execution are deemed appropriate. 7 Vision & Mission  Vision  A picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve  Mission  Specifies the business in which the firm intends to compete and the customers it intends to serve. 8 Strategic Vision and Mission statement (Basic Concepts)  A Strategic vision is a roadmap of a company’s future – providing specifics about technology and customer focus, the geographic and product markets to be pursued, the capabilities it plans to develop, and the kind of company that management is trying to create.  A Mission statement is typically focused on the company’s present business scope – “who we are and what we do” Mission statements broadly describe an organization’s present capabilities, customer focus, activities and business makeup.9 Objectives (Basic Concepts)  Objectives are an organization’s performance targets - the results and outcomes it wants to achieve. They function as yardsticks for tracking an organization’s performance  Strategic objectives are outcomes that strengthens an organization’s overall business position and competitive viability.  For example Financial objectives relate to financial performance targets management has established for the organization to achieve. 10  Objectives (Basic Concepts)  There are two distinct performance yardsticks for measuring the health of an organization, namely:  Financial performance: Acceptable financial performance or results is crucial as without adequate profitability the pursuit of a company’s vision as well as long-term health and survival is compromised and jeopardized.  Strategic performance: Managers must also pay attention to the company’s strategic well-being – its competitiveness and overall long- term business position.  A company’s performance must reflect improving competitive strength and a stronger long-term market position otherwise its progress is less inspiring and its ability to continue to deliver good financial performance is suspect.  It is imperative for management to set both good financial objectives 11 and good strategic objectives.  A Company’s Strategy (Basic Concept) A company’s Strategy consists of the competitive efforts and business approaches that managers employ to please customers, compete successfully and achieve organizational objectives.  Strategy is both proactive (intended and deliberate) and reactive(adaptive). . 12  A Company’s Strategy  A company’s strategy represents management’s answers to fundamental business questions as whether to:  concentrate on a single business or to build a diversified group of businesses,  cater for a broad range of customers or focus on a particular market niche,  develop a wide or narrow product line or whether to pursue a competitive advantage based on low cost or product superiority or unique organizational capabilities, and /or  how to respond to changing buyer preferences, how big a geographic market to try to cover, how to react to newly emerging market and competitive conditions and how to grow the enterprise over the long term.  Strategy making brings into play the critical managerial issue of how to achieve 13 the targeted results in the light of the organization’s situation and prospects. Company’s strategy  Objectives are the “ends” and strategy is the “means” of achieving them.  The hows of a company’s strategy are typically a blend of: 1. Deliberate and purposeful actions 2. As-needed reactions to unanticipated developments and fresh market conditions and competitive pressures and 3. The collective learning of the organization over time – not just the insights gained from its experiences but more important, the internal activities it has learned to perform quite well and the competitive capabilities it has developed 14  Strategy and Strategic Plan  Developing strategic vision and mission, establishing objectives and deciding on a strategy are basic direction- setting tasks.  They map out where the organization is heading, its short- range and long-range performance targets and competitive moves and internal action approaches to be used in achieving the targeted business results.  Together, these constitute a Strategic plan for coping with industry and competitive conditions, expected actions of the industry’s key players and the challenges and issues that are obstacles to the company’s success. 15  Important Definitions Competitive Advantage A firm has a competitive advantage when it implements a strategy that creates superior value for customers and competitors are unable to duplicate or find too costly to try to imitate. 16  Important Definitions Risk An investor’s uncertainty about the economic gains or losses that will result from a particular investment Average Returns Returns that are equal to those an investor expects to earn from other investments with a similar amount of risk Above-Average Returns Returns in excess of what an investor expects to earn from other investments with similar amounts of risk. 17  Two Models of Competitive Advantage 1. Industrial Organization Model I/O - focuses on the external environment: the industry in which a company choses to compete has a stronger influence on performance than choices managers make inside the organization 2. Resource-Based Model - focuses on the internal environment: each organization is a collection of resources and capabilities and the uniqueness of these is the basis of a firm’s strategy and its ability to earn above-average returns 18  I/O Model of Above-Average Returns Industrial Organization 1. Study the external Model environment, especially the industry environment The External Environment economies of scale barriers to market entry diversification product differentiation degree of concentration of firms in the industry 19  I/O Model of Above-Average Returns Industrial Organization 2. Locate an attractive industry Model with a high potential for above-average returns The External Environment An Attractive Industry Attractive industry: one whose structural characteristics suggest above-average returns 20  I/O Model of Above-Average Returns Industrial Organization 3. Identify the strategy called Model for by the attractive industry to earn above-average returns The External Environment An Attractive Industry Strategy Formulation Strategy formulation: selection of a strategy linked with above- average returns in a particular industry 21  I/O Model of Above-Average Returns Industrial Organization 4. Develop or acquire assets and Model skills needed to implement the strategy The External Environment An Attractive Industry Strategy Formulation Assets and Skills Assets and skills: those assets and skills required to implement a chosen strategy 22  I/O Model of Above-Average Returns Industrial Organization 5. Use the firm’s strengths (its Model developed or acquired assets and skills) to implement the strategy The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy implementation: select Strategy Implementation strategic actions linked with effective implementation of the chosen strategy 23  I/O Model of Above-Average Returns Industrial Organization Model The External Environment An Attractive Industry Strategy Formulation Assets and Skills Superior returns: earning of above-average returns Strategy Implementation Superior Returns 24  Resource-based Model of Above Average Returns 1. Firm’s Resources 1. Strategy dictated by unique resources and capabilities of the firm (what can the firm do best?) 2. Find an environment in which to exploit these assets (where are the best opportunities?) 25  Four Attributes of Resources and Capabilities (Competitive Advantage) Valuable allow the firm to exploit opportunities or neutralize threats in its external Resources and Capabilities environment Rare possessed by few, if any, current and potential competitors Costly to imitate when other firms cannot obtain them or must obtain them at a much higher cost Nonsubstitutable the firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage 26  Resources and capabilities that meet these four criteria become a source of: Valuable Resources and Capabilities Rare Core Competencies Costly to imitate Nonsubstitutable 27 Core Competencies are the basis for a firm’s Competitive advantage Core Competencies Ability to earn above-average returns 28 Resource-based Model of Above Average Returns Resource-based 1. Identify the firm’s resources-- Model strengths and weaknesses compared with competitors Resources Resources: inputs into a firm’s production process 29 Resource-based Model of Above Average Returns Resource-based 2. Determine the firm’s Model capabilities--what it can do better than its competitors Resources Capability Capability: capacity of an integrated set of resources to integratively perform a task or activity 30 Resource-based Model of Above Average Returns Resource-based 3. Determine the potential of Model the firm’s resources and capabilities in terms of a Resources competitive advantage Capability Competitive Advantage Competitive advantage: ability of a firm to outperform its rivals 31 Resource-based Model of Above Average Returns Resource-based 4. Locate an attractive industry Model Resources Capability Competitive Advantage An Attractive Industry An attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities 32 Resource-based Model of Above Average Returns Resource-based 5. Select a strategy that best Model allows the firm to utilize its resources and capabilities Resources relative to opportunities in the Capability external environment Competitive Advantage An Attractive Industry Strategy formulation and Strategy Form/Impl implementation: strategic actions taken to earn above average returns 33 Resource-based Model of Above Average Returns Resource-based Model Resources Capability Competitive Advantage An Attractive Industry Superior returns: earning of above-average returns Strategy Form/Impl Superior Returns 34  The Firm and its Stakeholders Stakeholders Groups The firmwho must aremaintain affected by a firm’s performance performance at an adequate and who have level claims in orderontoits retain wealth the participation of key stakeholders 35 The Firm and Its Stakeholders Stakeholders Shareholders Capital Market Stakeholders Major suppliers of capital Banks Private lenders Venture capitalists 36 The Firm and Its Stakeholders Stakeholders Capital Market Stakeholders Primary customers Product Market Stakeholders Suppliers Host communities Unions 37 The Firm and Its Stakeholders Stakeholders Capital Market Stakeholders Product Market Stakeholders Employees Organizational Stakeholders Managers Nonmanagers 38 Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm Capital Organizational Market 1 How do you divide the Product returns to keep Market stakeholders involved? 39 Stakeholder Involvement Two issues affect the extent of stakeholder involvement in the firm Capital Organizational Market 2 How do you increase the Product returns so everyone has Market more to share? 40 Strategic Leaders Are people located in different areas and levels of the firm using the strategic management process to select strategic actions that help the firm achieve its vision and fulfil its mission Innovative thinkers and promote innovation in their organization Global mindset – ambi-cultural approach to management Predicts the effects on the firm’s profits of strategic decision they are considering 41 End of Lecture! Questions? 42