Chapter 9 – Strategic management

CHAPTER 9 – STRATEGIC MANAGEMENT

STRATEGIC MANAGEMENTLearning 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. Must be viewed in the context of several decisions and the consistency among the decisions.

2. The organisation must be aware of alternatives in all of its decisions.

Strategic intent Focuses and applies

organisational energies on a unifying and compelling goal.

Strategies may change as environmental conditions change

WHAT IS ORGANISATIONAL STRATEGY?

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 shareholder’s 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 rival’s 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. Identify organisational mission and objectives.

2. Assess current performance in relation to mission and objectives.

3. Create strategic plans to accomplish purpose and objectives.

4. Implement the strategic plans. 5. 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. Profitability2. Market share3. Human talent4. Financial health5. Cost efficiency6. Product quality7. Innovation8. 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 (PORTER’S 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.

Strategic business unit (SBU) A major business area that operates with some

autonomy. Functional strategy

Guides activities within one specific area of operations.

LEVELS OF STRATEGY IN ORGANISATIONS

GROWTH AND DIVERSIFICATION STRATEGIES Growth strategies involve expansion

of the organisation’s 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. Cost and quality2. Knowledge and speed3. Barriers to entry4. Financial resources.

PORTER’S 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.