Strategic Management
Module:1
“Without a strategy the organization is like
a ship without a rudder.”
Joel Ross and Michael Kami
Authors and Consultants
$ “A Strategy is a commitment to undertake
one set of actions rather than another.”
Jack Welch
Former CEO, General Electric
What Do We Mean By Strategy?
– Strategy and the Quest for Competitive
Advantage
– Identifying a Company’s Strategy
– Why a Company’s Strategy Evolves Over Time
– A Company’s Strategy Is Partly Proactive and
Partly Reactive
Strategy and Ethics: Passing the Test of
Moral Scrutiny
The Relationship Between a Company’s
Strategy and Its Business Model
What Makes a Strategy a Winner?
Why Are Crafting and Executing Strategy
Important?
Thinking Strategically:
The Three Big Strategic Questions
1. What’s the company’s present situation?
2. Where does the company need to go from here?
– Business(es) to be in and market positions to stake out
– Buyer needs and groups to serve
– Direction to head
3. How should it get there?
– A company’s answer to “how
will we get there?” is its strategy
What Do We Mean By
“Strategy”?
Management’s “action plan” to
Consists of competitive moves and business
approaches used by managers to run the company
– Grow the business
– Attract and please customers
– Compete successfully
– Conduct operations
– Achieve target levels of
organizational performance
The Hows That
Define a Firm's Strategy
How to grow the business
How to please customers Strategy
is HOW
How to outcompete rivals to . . .
How to manage each functional
piece of the business (R&D, production,
marketing, HR, finance, and so on)
How to respond to changing market
conditions
How to achieve targeted levels of
performance
Choosing the “Hows” of
Strategy
Strategic choices about “how” are based on
– Trial-and-error organizational learning about what has worked
and what has not worked
– Management’s appetite for taking risks
– Managerial analysis and strategic thinking about how best to
proceed, given market conditions and the company’s
circumstances
In choosing a strategy, management is in effect saying,
“Among all the many different business approaches and
ways of competing we could have chosen, we have
decided to employ this particular combination of
competitive and operating approaches in moving the
company in the intended direction, strengthening its
market position, and competitiveness, and boosting
performance.”
Key Elements of a Successful
Strategy
Developing a successful strategy hinges on
making competitive moves aimed at
– Appealing to buyers in ways to set the
enterprise apart from rivals and
– Carving out its own market position
Involves developing a distinctive “aha”
element to
– Attract customers and
– Produce a competitive edge
Copying competitive moves of other
successful companies rarely works!
Key Elements:
Comcast’s Strategy
Roll out high-speed Internet or broadband service to
customers via cable modems
Promote a new video-on-demand service to allow digital
subscribers to watch TV programs whenever they want
Promote a video-on-demand service so digital customers
can order and watch pay-per-view movies
Partner with Sony, MGM, and others to expand movie
offerings
Use VoIP technology to offer subscribers Internet-based
phone service at a fraction of the cost charged by others
Use video-on-demand and CDV offerings to combat
mounting competition from satellite TV providers
Employ a sales force to sell advertising to businesses that
were shifting advertising dollars from sponsoring network
programs to sponsoring cable programs
Significantly improve customer service
For Discussion: Your Opinion
From your perspective as a cable or satellite service
consumer, does Comcast’s strategy (as described in
Illustration Capsule 1.1) seem to be well-matched
to industry and competitive conditions?
Does the strategy seem to be keyed to a cost
advantage, differentiating features, serving
the unique needs of a niche, or developing
resource strengths and competitive capabilities
rivals can’t imitate or trump (or a mixture of
these)?
What is there about Comcast’s strategy that
can lead to sustainable competitive
advantage?
Strategy and the Quest for
Competitive Advantage
The heart and soul of any strategy are the actions and
moves in the marketplace that a company makes to
strengthen its competitive position and gain a competitive
advantage over rivals
A creative distinctive strategy that sets a company apart
from rivals and yields a competitive advantage is a
company’s most reliable ticket to above average
profitability
– Competing with a competitive advantage is more
profitable than competing with no advantage
– Competing with a competitive disadvantage
nearly always results in below-average
profitability
Strategic management
“Strategic Management is the set of
managerial decisions and actions that
determines the long-run performance
of an organisation.”
Strategic management is the art,
science and craft of formulating,
implementing and evaluating cross-
functional decisions that will enable an
organization to achieve its long-term
objectives.
Strategy
Johnson and Scholes define strategy as
follows:
"Strategy is the direction and scope of
an organisation over the long-term:
which achieves advantage for the
organisation through its configuration
of resources within a challenging
environment, to meet the needs of
markets and to fulfill stakeholder
expectations".
Factors affecting strategies
society forces
political and regulatory forces
citizenship considerations
the industry and competitive conditions
opportunities and threats
organizational strengths and weaknesses
ethical considerations
personal managerial ambitions
company culture
Strategic Thinking
It is a process of developing or examining the
assumptions about the future upon which the
organization’s mission, goals and strategy are
based, to evaluate whether they still reflect the
realities the organization faces.
Strategic Thinking Should
Consider the enterprise as a whole
Be about the long term and not the immediate
Address the organisations relationship with the
environment and its capabilities and resources
Be based on fact and reality with some
imagination
Have a good understanding of the present
Be able to think imaginatively about the future
4 Key requirements of strategic
thinking
– A definite purpose in mind
– An understanding of the firm’s environment,
particularly of the forces that affect or
impede the fulfilment of that purpose, the
environmental view; the project view; and
the measurement view
– The organization, the people, the
organization structure, and the resources
necessary to make it all work
– Creativity in developing the effective
responses to all the above factors
Basics of Strategic Management
Four aspects that set strategic
management apart
– Interdisciplinary
Capstone of the Business degree
– External focus
Competition
– Internal focus
– Future direction
Importance of Strategic
Management
Provide direction and momentum for the
business
Encouraging new ideas
Developing a sustainable competitive
advantage for the business
Helps in achieving the organizational goals
in an effective and efficient manner.
actually gives the organization direction, a
sense of identity and unity towards what
the business goal
Characteristics of Strategic
Management Process
Strategic management strengthens
the competitive position
Strategic management coordinates
and integrates business activities
Strategic management satisfies
customers
Strategic management works
towards achieving performance
targets
Strategic management is adaptive
Functions of strategic management
Evolve business goals, by formulating its future
mission and vision in terms of the expectations of
the stake-holders
Set objectives that are achievable in light of
changing external factors that include regulation,
competition, technology, and customers
Evolve and develop a competitive strategy to
achieve the mission
Create an effective organizational structure and
arrange the resources to successfully carry out
the strategy
Evaluate the performance so that necessary
corrective measures can be taken to keep it on
track to achieve the vision
What is a strategic plan?
A Strategic Plan maps out
– Where firm is headed
– Short and long range performance
targets
– Actions of management to achieve
outcomes
A Strategic Plan consists of
– A strategic vision & business mission
– Strategic & financial performance
objectives
– Comprehensive strategy for achieving
the objectives
Strategic Management Process
Identifying the organisation’s current
mission, objectives, and strategies
Mission: the firm’s reason for being
Who we are,
What we do, and
Where we are now
Goals: the foundation for further planning
Measurable performance targets
Conducting an external analysis
– The environmental scanning of specific
and general environments
– Focuses on identifying opportunities and
threats
Conducting an internal analysis
– Assessing organizational resources,
capabilities, activities and culture:
Strengths (core competencies) create value for
the customer and strengthen the competitive
position of the firm.
Weaknesses (things done poorly or not at all)
can place the firm at a competitive
disadvantage.
Steps 2 and 3 combined are called a SWOT
analysis (Strengths, Weaknesses, Opportunities,
and Threats)
Formulating strategies
– Develop and evaluate strategic
alternatives
– Select appropriate strategies for all
levels in the organization that provide
relative advantage over competitors
– Match organizational strengths to
environmental opportunities
– Correct weaknesses and guard against
threats
Implementing strategies
– Implementation: effectively fitting
organisational structure and activities to
the environment
– Effective strategy implementation
requires an organisational structure
matched to its requirements.
Evaluating results
– How effective have strategies been?
– What adjustments, if any, are
necessary?
What Is a Business Model?
A business model addresses “How do we make money in
this business?”
– Is the strategy capable of delivering
good bottom-line results?
Do the revenue-cost-profit economics
of the strategy make good business sense?
– Look at revenue streams the strategy is expected to
produce
– Look at associated cost structure and potential profit
margins
– Do resulting earnings streams and ROI indicate the
strategy makes sense and the company has a viable
business model for making money?
Relationship Between
Strategy and Business Model
Strategy . . . Business Model . . .
Concerns whether revenues
Deals with a company’s and costs flowing from the
competitive initiatives strategy demonstrate a
and business approaches business can be amply
profitable and viable
gy
te
t ra es
s
S i n
s el
Bu od
M
Microsoft’s Business Model
Employ a cadre of highly skilled programmers to develop proprietary
code; keep source code hidden from users
Sell resulting OS and software packages to PC makers and users at
relatively attractive prices to achieve a 90% or more market share
Most costs in developing software are fixed; variable costs are small;
once break-even volume is reached, revenues from additional sales
are almost pure profit
Provide
Provide modest
modest level
level of
of technical
technical support
support to
to users
users at
at no
no cost
cost
Rejuvenate
Rejuvenate revenues
revenues by
by periodically
periodically introducing
introducing next-generation
next-generation
software
software with
with features
features inducing
inducing PC
PC users
users toto upgrade
upgrade their
their operating
operating
systems
systems
Red Hat’s Business Model
Rely on collaborative efforts of volunteer programmers to create the
software
Collect and test enhancements and new applications submitted by
volunteer programmers for evaluation and inclusion in new releases
of Linux
Market upgraded and tested family of Red Hat products to large
companies, charging a subscription fee that includes 24/7 support
within 1 hour in 7 languages
Make
Make source
source code
code open
open and
and available
available to
to all
all users
users
Capitalize
Capitalize on
on specialized
specialized expertise
expertise required
required to
to use
use Linux
Linux by
by
providing
providing fee-based
fee-based training,
training, consulting,
consulting, software
software customization,
customization, and
and
client-directed
client-directed engineering
engineering to
to Linus
Linus users
users
Test Your Knowledge
The nitty-gritty issue surrounding a company’s
business model is whether
A. the strategy is capable of producing sustainable
competitive advantage.
B. it matches the company’s external and internal
situation.
C. the chosen strategy makes good business sense
from a money-making perspective.
D. the company’s strategy and strategic moves are
mostly proactive.
E. the company’s strategy stands a really good
chance of hitting a home-run in the marketplace.
For Discussion: Your Opinion
Who has the best business model
–
Microsoft or Red Hat?
Tests of a Winning Strategy
GOODNESS OF FIT TEST
– How well does strategy fit
the firm’s situation?
COMPETITIVE ADVANTAGE TEST
– Does strategy lead to sustainable
competitive advantage?
PERFORMANCE TEST
– Does strategy boost firm performance?
Other Criteria for Judging
the Merits of a Strategy
Internal consistency and unity among all
pieces of the strategy
Degree of risk the strategy poses as
compared to alternative strategies
Degree to which the strategy is flexible
and adaptable to changing circumstances
While these criteria are relevant, they seldom override
the importance of the three tests of a winning strategy!
Why Is Strategy Important?
A compelling need exists for managers
to proactively shape how a firm’s
business will be conducted
A strategy-focused firm is more likely
to be a strong bottom-line performer
than one that views strategy as secondary
Good Strategy + Good Strategy Execution
= Good Management
Crafting and executing strategy are core management
functions
Among all things managers do, nothing affects a company’s
ultimate success or failure more fundamentally than how
well its management team
– Charts a company’s direction,
– Develops competitively effective strategic moves and
business approaches, and
– Pursues what needs to be done internally to produce
good day-in/day-out strategy execution
Excellent execution of an excellent strategy is the
best test of managerial excellence – and the
most reliable recipe for winning in the marketplace!