STRATEGIC MANAGEMENT INTRODUCTION NOTES Page 2 DKD which are required for firms to: Create and Sustain Competitive Advantage STRATEGIC MANAGEMENT PROC...
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Most battles are won or lost before they are engaged in; by men who take no part in them; by their strategists. -- K. von Clausewitz
DEEPAK DATTA MBA Spring 2010
DKD
WHAT IS STRATEGY?
• • •
Means of establishing organizational purpose
•
Way to define managerial tasks with corporate, business and functional perspectives
• •
Coherent, unifying and integrative pattern of decisions
• •
Expression of strategic intent
Definition of the competitive domain Response to external opportunities and threats and internal strengths and weaknesses
Definition of the economic and non-economic contribution the firm intends to make to stakeholders Means to develop organizational core competencies to create sustainable competitive advantage
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STRATEGIC MANAGEMENT
Study of the functions and responsibilities of general managers; of problems that affect the success of the total enterprise and the decisions that determine the direction of the organization and shape its future.
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STRATEGIC MANAGEMENT INTRODUCTION NOTES STRATEGIC MANAGEMENT PROCESS Consists of: :
Analysis
Decisions
Actions
which are required for firms to: Create and Sustain Competitive Advantage DKD
EVOLUTION OF STRATEGIC MANAGEMENT
Financial Planning
Forecast based Planning
PHASE I Pre 1950s
PHASE II 1950s
Strategic Planning
PHASE III 1960s-80s
Integrative Strategic Management
PHASE IV Late 1980s+
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IMPORTANCE-- STRATEGIC MANAGEMENT Chance favors the prepared mind -- Louis Pasteur
• Develop “theme” for organization • Provide discipline for long-term thinking • Deal with environmental complexity • More effective resource allocation • Integrate diverse administrative activities • Increase managerial effectiveness • Improve employee motivation • Address stakeholder concerns DKD
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STRATEGIC MANAGEMENT INTRODUCTION NOTES LEVELS OF STRATEGY
Corporate What business(es) should we be in?
Business/Competitive How should we compete in a given industry?
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CORPORATE AND BUSINESS STRATEGY INDUSTRY ATTRACTIVENESS Which industries should we be in?
CORPORATE STRATEGY
RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL How do we make money?
COMPETITIVE ADVANTAGE How should we compete?
BUSINESS STRATEGY
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LEVELS OF STRATEGY
Corporate What business(es) should we be in?
Business/Competitive How should we compete in a given industry?
Functional How can business level strategy be effectively implemented? How can value be created? DKD
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STRATEGIC MANAGEMENT INTRODUCTION NOTES The Strategic Management Process
Strategy Analysis Mission Goals and Objectives External Environment
Internal Environment
Strategy Formulation
Strategy Implementation
Business-Level Corporate-Level Strategy Strategy
Governance/ Leadership
Organization Design/Control
International Strategy
Functional Strategy
Orgn. Culture & Innovation
Strategic Competitiveness
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STRATEGIC INTENT/VISION, MISSION AND STRATEGIC OBJECTIVES
Intent/Vision Winning competitive battles through decisions on how to best leverage internal resources, capabilities, and core competencies.
Mission
Goals/ Objectives
An application of strategic intent/vision in terms of products to be offered and markets to be served.
Used to operationalize the mission statement • Measurable • Specific • Appropriate • Realistic • Timely
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MISSION STATEMENT - PURPOSE
Organizational vision -- what it aspires to be What distinguishes a given organization Framework for evaluating current and future activity Shared organization purpose; establish organizational culture Portray organizational priorities Motivate employees Establish basis for allocating resources DKD
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STRATEGIC MANAGEMENT INTRODUCTION NOTES MISSION STATEMENT VALUES AND SOCIAL RESPONSIBILITY
Values and Principles
Explicit statement of values and principles that guide business conduct Instruments of companies’ external image management process Influence employees’ motivation, propensity to collaborate, and their own sense of identity
Corporate Social Responsibility
Property conception -- which views the firm as a collection of assets owned by the stockholders Social entity conception – views firms as a community of individuals sustained and supported by its relationship with environment
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STAKEHOLDERS The firm must maintain performance at an adequate level in order to maintain the participation of key stakeholders
Capital Market
Firm
Stock market/Investors Debt suppliers/Banks
Organizational
Product Market
Employees Managers Non-Managers
Primary Customers Suppliers
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STAKEHOLDER INVOLVEMENT Each of the key stakeholders involved wants a piece of the same pie
1
How do you divide the pie in order to keep all of the stakeholders involved?
2
How do you increase the size of the pie so that there is more to go around? DKD
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STRATEGIC MANAGEMENT INTRODUCTION NOTES INDUSTRIAL ORGANIZATION (I/O) MODEL
The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm. The I/O model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm. DKD
I/O MODEL OF SUPERIOR RETURNS
External Environment General Environment Industry / Competitive Environment
An Attractive Industry
Strategy Formulation
An industry whose structural characteristics suggest aboveaverage returns are possible
Selection of a strategy linked with aboveaverage returns in a particular industry
Action required:
Action required:
Action required:
Study the external environment, especially the industry environment
Locate an industry with high potential for aboveaverage returns.
Identify strategy called for by the industry to earn above-average returns.
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I/O MODEL OF SUPERIOR RETURNS
Assets and Skills
Strategy Implementation
Superior Returns
Assets and skills required to implement a chosen strategy
Strategic actions linked with effective implementation of the chosen strategy
Earning of aboveaverage returns
Action required:
Action required:
Action required:
Develop/acquire assets and skills needed to implement the strategy
Use the firm’s strengths (its assets or skills) to implement the strategy.
Maintain selected strategy in order to outperform industry rivals.
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STRATEGIC MANAGEMENT INTRODUCTION NOTES RESOURCE-BASED MODEL
The Resource-Based Model suggests that above-average returns for any firm are largely determined by characteristics inside the firm. The Resource-Based view focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate. DKD
RESOURCE BASED MODEL OF SUPERIOR RETURNS Resources
Capability
• Inputs to a firm’s production process.
• Capacity for an integrated set of resources to perform a task or activity.
Competitive Advantage • Ability of a firm to outperform its rivals .
Action required:
Action required:
Action required:
Identify firm resources. Study strengths and weaknesses relative to rivals.
Determine what firm capabilities allow it to do better than rivals
Determine how firm’s resources and capabilities may create competitive advantage.
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RESOURCE BASED MODEL OF SUPERIOR RETURNS An Attractive Industry • Location of an industry with opportunities that can be exploited by the firm’s capabilities •.
Strategy Formulation and Implementation • Strategic actions taken to earn above-average returns
Superior Returns • Earning of aboveaverage returns
Action required:
Action required:
Action required:
Locate an attractive industry
Select strategy that best exploits resources and capabilities relative to envtl. opportunities
Maintain selected strategy in order to outperform industry rivals
