What Is Strategy and Why Is It Important?
The Nature of Strategic Management
Today must do more than set long-term strategies and hope for the best
Must go beyond incremental management Making minor changes
Todays pace of change is accelerating Managers must make major and minor changes in strategic direction
Leaders must be: -Proactive -Anticipate change -Continually refine and -Make strategic changes
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Consists of competitive moves and business approaches used by managers to run the company
Managements action plan to -Grow the business
-Attract and please customers -Compete successfully -Conduct operations -Achieve target levels of organizational performance
Strategic Management Elements
Analysis
Strategic goals (vision, mission, strategic objectives) Internal and external environment of the firm
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Strategic Management Elements
Strategic decisions
What industries should we compete in? How should we compete in those industries?
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Strategic Management Elements
Actions
Allocate necessary resources Design the organization to bring intended strategies to reality
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Essence of Strategic Management
Strategic management is the study of why some firms outperform others
How to compete in order to create competitive advantages in the marketplace How to create competitive advantages in the market place
Unique and valuable Difficult for competitors to copy or substitute
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The Nature of Strategic Management
Strategic Inflection Point Business prospers
Business declines
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The Four Key Attributes of Strategic Management
Directs the organization toward overall goals and objectives
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Includes multiple stakeholders in decision making
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Needs to incorporate short-term and long-term perspectives
Peter Senge refers to this needs as a creative tension Must maintain a vision for the future of the organization and focus on its present operating needs
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Recognizes trade-offs between efficiency and effectiveness
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Intended Strategy
Planned
Unrealized Strategy
Constraints on portions of the intended strategy
Deliberate Strategy
Implemented plan
Emergent Strategy
Changes to the deliberate strategy
Realized Strategy
The terminal strategy
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Intended Versus Realized Strategies
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Intended Versus Realized Strategies
The final realized strategy of any firm is a combination of deliberate and emergent strategies.
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Strategy Context
Business strategies are works in progress
Must be flexible Type of industry determines speed of change
Necessity of adaptation Managerial choices
Influenced by environmental forces
Feedback Feedforward
Combination of two types of response elements
Proactive strategy elements (deliberate) Reactive strategy elements (adaptive or emergent)
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Strategy-making is a market-driven activity involving
Studying market trends and competitors actions Keen observation of customer needs Scrutinizing business possibilities based on new technologies Building firms market position via acquisitions or new product introductions Pursuing ways to strengthen firms competitive capabilities Proactively searching out opportunities to Do new things Do existing things in new or better ways21 1-
Key Strategic Management Processes
The Key Processes
Strategy Analysis Strategy Formulation Strategy Implementation
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Key Strategic Management Processes
Strategy Analysis
Starting point in the strategic management process Precedes effective formulation and implementation of strategies
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Frameworks for analyzing a firms internal environment
Strengths Weaknesses
Analyzing strengths can uncover potential sources of competitive advantage Analyzing external environments
Competitors General environment Industry environment
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Companys Strategies
Best indicators
Actions in the marketplace Statements of senior managers
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- Most public companies publicize
present strategies
Retain investor confidence Presentations to securities analysts Investor relations section of company Web site Usually, only specific implementation tactics of future strategies are withheld
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Key Strategic Management Processes
Strategy Formulation
Business level strategy:
Successful firms develop bases for competitive advantage
Cost leadership Differentiation Focusing on narrow or industry-wide market segments
Sustainability Industry life cycle
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Strategy Formulation (Continued)
Corporate-level strategy addresses:
Firms portfolio or group of businesses
What business(es) should we be in? How can we create synergies among the businesses?
Diversification
Related Unrelated
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Key Strategic Management Processes
Strategy Implementation
Strategy set (Vision, mission, objectives) Organizational structure Organizational culture Allocation of resources Policies and procedures consistent with strategy Leadership and support Customer and employee relations Best practices throughout value chain Kaizen 1 - 29
Key Strategic Management Processes
Tests of a Winning Strategy
GOODNESS OF FIT TEST
How well does strategy fit the firms situation?
Resources Culture Structure
COMPETITIVE ADVANTAGE TEST
Does strategy lead to sustainable competitive advantage?
PERFORMANCE TEST
Does strategy boost firm performance?
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Resource-Based View of the Firm
Resource-based view -- helpful perspective for understanding strategic management and its activities Two perspectives
The internal analysis of phenomena within a company An external analysis of the industry and its competitive environment
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Resource-Based View of the Firm
Organizational Capabilities
Firm Competencies or skills the firm employs to transfer inputs to outputs Capacity to combine tangible and intangible resources, using organizational processes to attain desired end
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Sustainable Competitive Advantages
Securing Sustainable Competitive Advantages
Resources alone are not the basis for competitive advantages, nor are such advantages sustainable over time by themselves. Resources or capabilities may help firm to increase revenue or lower costs temporarily.
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Sustainable Competitive Advantages
Determine if the Resource or Capability is
Valuable
Not many firms possess
Rare
Physically unique
Difficult to Imitate
Path dependency Causal Ambiguity Social Complexity
Difficult to Substitute
No equivalent strategic resources or capabilities
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Sustainable Competitive Advantages
Is the Resource Valuable?
Resources are valuable when they enable a firm to formulate and implement strategies that improve its efficiency or effectiveness SWOT matrix suggests firms improve performance only when they exploit opportunities or neutralize threats
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Sustainable Competitive Advantages
Is the Resource Rare?
If competitors possess same valuable resource, not source of competitive advantage Common strategies based on a resources is not an advantage Some strategies require mix of resources tangible assets, intangible assets, and organizational capabilities
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Sustainable Competitive Advantages
Can the Resource Be Imitated Easily?
Inimitability is key to value creation
Constrains competition
Competitors will eventually find a way to copy valuable resources
Advantage based on inimitability wont last forever
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Sustainable Competitive Advantages
Can the Resource Be Imitated Easily?
Managers can develop strategies around resources that have one or more of the following four characteristics:
Physical Uniqueness Path dependency Causal ambiguity Social complexity
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Sustainable Competitive Advantages
Are Substitutes Readily Available?
Must be no strategically equivalent valuable resources that are themselves not rare or inimitable Substitutability takes two forms:
Substitute similar resource to implement same strategy Very different resources can become strategic substitutes
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