CHAPTER 9 STRATEGIC MANAGEMENT

STRATEGIC MANAGEMENT
Learning objectives: What are the foundations of strategic competitiveness? What is strategic management? What types of strategies are used by organisations? How are strategies formulated? What are the current issues in strategy implementation?

SUSTAINABLE STRATEGIC COMPETITIVENESS

A competitive advantage allows an organisation to deal with market and environmental forces better than its competitors. The aim for any organisation is not just to achieve competitive advantage but to make it sustainable in spite of competitors attempts to copy or duplicate a success story. Achieving and sustaining competitive advantage is a challenging task. Adaptation is the key concept

WHAT IS ORGANISATIONAL STRATEGY?

Organisational strategy
A

pattern in a stream of organisational decisions (Henry Mintzberg).

1.

2.

Must be viewed in the context of several decisions and the consistency among the decisions. The organisation must be aware of alternatives in all of its decisions.

WHAT IS ORGANISATIONAL STRATEGY?

Strategic intent Focuses and applies organisational energies on a unifying and compelling goal. Strategies may change as environmental conditions change

STRATEGIC MANAGEMENT

Strategic management
The

process of formulating and implementing strategies to accomplish long-term goals and sustain competitive advantage. Essentially involves:
looking

ahead; understanding the environment and the organisation; and positioning the organisation for competitive advantage in changing times.

STRATEGIC MANAGEMENT GOALS

Michael Porter argues that the ultimate goal for a business should be superior profitability. This creates value for shareholders in the form of above-average returns. Above-average returns Returns exceeding what could be earned from alternative investments of equivalent risk. The competition within the environment largely determines whether above-average returns are achievable. At PepsiCo, this goal is stated as: To increase the value of our shareholders investment.

STRATEGIC MANAGEMENT GOALS

Monopoly environment
Only

one organisation and no competition. Most are government-owned organisations.

Oligopoly environment
A

small number of competitors feel themselves to be constrained more by the actions of their rivals than by those of their customers. Understanding of the principles of game theory becomes a critical skill of strategists under an oligopoly, e.g. what will be a rivals response to a price change?

STRATEGIC MANAGEMENT GOALS

Hypercompetition
Environment

in which there are at least several players who directly compete with one another, e.g. fast-food industry. The competition is direct and intense, so any competitive advantage that is realised is temporary. The customer generally gains in this environment through lower prices and more product/service innovation.

THE STRATEGIC MANAGEMENT PROCESS

THE STRATEGIC MANAGEMENT PROCESS

Strategy formulation
Process

of creating strategy. Involves assessing existing strategies, organisation and environment to develop new strategies/plans capable of delivering future competitive advantage.

Strategy implementation
Process

of allocating resources and putting strategies into action. Once strategies are created, must be acted on to achieve the desired results.

THE STRATEGIC MANAGEMENT PROCESS

Five strategic management tasks

1. 2.

3.

4.
5.

Identify organisational mission and objectives. Assess current performance in relation to mission and objectives. Create strategic plans to accomplish purpose and objectives. Implement the strategic plans. Evaluate results; change strategic plans and/or implementation processes as necessary.

ANALYSIS OF MISSION, VALUES AND OBJECTIVES

The mission or purpose of an organisation may be described as its reason for existence in society. Mission statement

Identifies

the domain in which the organisation intends to operate, including customers, products and/or services, and location. Should communicate the underlying philosophy that will guide employees.

EXTERNAL STAKEHOLDERS AND THE MISSION STATEMENT

MISSION, VALUES AND OBJECTIVES CORE VALUES

Organisational culture
The

system of shared beliefs and values that develops within an organisation and guides the behaviour of its members.

The presence of strong core values helps build institutional identity, giving an organisation character in the eyes of its employees and external stakeholders.

MISSION, VALUES AND OBJECTIVES

Operating objectives direct activities towards specific performances results. Peter Drucker suggested these might include:
1. Profitability 2. Market share 3. Human talent 4. Financial health 5. Cost efficiency 6. Product quality 7. Innovation 8. Social responsibility

ANALYSIS OF ORGANISATIONAL RESOURCES AND CAPABILITIES

A SWOT analysis examines organisational strengths and weaknesses as well as the external analysis of environmental opportunities and threats. Core competencies are special strengths that give an organisation competitive advantage.

SWOT ANALYSIS

ANALYSIS OF INDUSTRY AND ENVIRONMENT (PORTERS FIVE FORCES MODEL)

LEVELS OF STRATEGY

Corporate strategy

Sets long-term direction for the total enterprise.

Business strategy

Identifies how a division or strategic business unit will compete in its product or service domain. A major business area that operates with some autonomy.
Guides activities within one specific area of operations.

Strategic business unit (SBU)

Functional strategy

LEVELS OF STRATEGY IN ORGANISATIONS

GROWTH AND DIVERSIFICATION STRATEGIES

Growth strategies involve expansion of the organisations current operations.

Growth

through concentration is within the same business area. Growth through diversification is by acquisition of or investment in new and different business areas. Growth through vertical integration is by acquiring suppliers or distributors.

RESTRUCTURING AND DIVESTITURE STRATEGIES

When an organisation has performance problems, a retrenchment strategy may be used to reduce the scale of current operations.
Liquidation is when operations cease due to the complete sale of assets/bankruptcy. Restructuring changes scale and/or mix of operations to improve efficiency/performance. Downsizing decreases the size of operations with the intention of becoming more streamlined. Divestiture sells off parts of organisation to focus attention and resources on core business areas.

COOPERATION IN BUSINESS STRATEGIES

In strategic alliances, organisations join together in partnership to pursue an area of mutual interest. Outsourcing alliances are contracts to purchase important services from another organisation such as payroll, IT, and security. Distribution alliances involve organisations joining together to accomplish product or service sales and distribution.

E-BUSINESS STRATEGIES
An e-business strategy strategically uses the internet to gain competitive advantage B2B (business-to-business) vertically link organisations with members of their supply chain B2C (business-to-consumer) link organisations with their customers

STRATEGY FORMULATION
Sustainable competitive advantage exists through realising cost and quality, knowledge and speed, creating a market stronghold and protecting financial resources. The major opportunities for competitive advantage are found in:

1. 2. 3. 4.

Cost and quality Knowledge and speed Barriers to entry Financial resources.

PORTERS GENERIC STRATEGIES FRAMEWORK: MOTOR VEHICLE INDUSTRY EXAMPLES

STRATEGY FORMULATION
A differentiation strategy offers products that are unique and different from the competition. A cost leadership strategy seeks to operate with lower costs than competitors. A focused differentiation strategy offers a unique product to a special market segment. A focused cost leadership strategy seeks the lowest costs of operations within a special market segment.

THE PRODUCT LIFE CYCLE

PORTFOLIO PLANNING

Portfolio planning
Seeks

the best mix of investments among alternative business opportunities. In multi-business situations, allocates scarce resources among competing uses.

The BCG matrix analyses business opportunities according to market growth rate and market share. See diagram on next slide.

THE BCG MATRIX

THE GE BUSINESS SCREEN

ADAPTIVE STRATEGIES

The Miles and Snow adaptive model:

A

Prospector strategy pursues innovation and new opportunities with prospects for growth. A defender strategy emphasises existing products and market share without seeking growth. An analyser strategy maintains the stability while exploring selective opportunities. A reactor strategy responds to competitive pressures in order to survive.

EMERGENT STRATEGIES

Emergent strategies
Develop

progressively over time as streams of decisions made as managers learn and respond to situations. Contains element of craftsmanship which is often overlooked my managers, who choose and discard strategies quickly using formal models. Incremental/emergent strategic planning helps managers become good at implementing strategies, not just formulating them.

STRATEGY IMPLEMENTATION

Current issues in strategy implementation include:

Management

practices and systems, from planning and controlling through organising and leading must be mobilised to support strategies. Corporate governance, the system of control and performance monitoring of top management. Strategic leadership, the capability to enthuse people to successfully engage in process of continuous change, performance enhancement and implementation of organisational strategies.