1. Temple University BA 951 Policy Formulation and Administration
Ram Mudambi
Temple University (USA)
and
University of Reading (UK)
Go over syllabus
Textbook
Blackboard site
Groups
Grading
Class participation – self-assessment, but I will check it
If you cannot attend a class, I will assign you your average participation grade for all other sessions for the missed sessions.
Quiz – 1 hour, four case-related analytical questions
Presentations – please bring in one hard copy of PP overheads for me
Please follow guidelines in text regarding case analysis, for presentation as well as final case analysis.
© Ram Mudambi, Temple University, 2006

2. Lecture 1 What is Strategic Management?
BA 950
Policy Formulation and Administration
Lecture 1 What is Strategic Management?
© Ram Mudambi, Temple University, 2006

3. Overview What is strategy?
An plan of action a company takes to attain superior performance.
Why do some firms succeed while others fail?
A central objective of strategic management is to learn why this happens.
What is the strategic management process?
The process by which managers choose a set of strategies for the enterprise to pursue its vision.
© Ram Mudambi, Temple University, 2006

4. Superior Performance Superior performance Competitive advantage
One company’s profitability relative to that of other companies in the same or similar business or industry
Maximizing shareholder value is the ultimate goal of profit making companies
ROIC (Profitability) = Return On Invested Capital
= Net profit / capital invested
= Net income after tax / (equity + debt to creditors)
Competitive advantage
When a company’s profitability is greater than the average of all other companies in the same industry & competing for the same customers
Profitability
Sustained competitive advantage
Growth
© Ram Mudambi, Temple University, 2006

5. Performance in Nonprofit Enterprises
Nonprofit entities such as government agencies, universities, and charities:
Are not in business to make a profit
Should use their resources efficiently and effectively
Set performance goals unique to the organization
Set strategies to achieve goals and compete with other nonprofits for scarce resources
A successful strategy gives potential donors a compelling message as to why they should contribute.
© Ram Mudambi, Temple University, 2006

6. Strategy as a plan
Strategy is concerned with ‘draft(ing) the plan of war...shap(ing) the individual campaigns, and within these, decid(ing) on the individual engagements.’ (Von Clausewitz, On War, 1976)
Strategy is ‘a complete plan: a plan which specifies what choices (the player) will make in every possible situation.’ (Von Neumann and Morgenstern, Games and Economic Behavior, 1944)
‘Strategy is a unified, comprehensive and integrated plan...designed to ensure that the basic objectives of the enterprise are achieved.’ (Glueck, Business Policy and Strategic Management, 1980)
© Ram Mudambi, Temple University, 2006

7. Two factors underlying all outcomes
Strategy
Chance
Strategy
Outcome
Outcome
Chance
Good strategy
Bad strategy
Planned
Unplanned
Planned
Unplanned
Example: The Battle of Plassey :
Robert Clive and his East India Company troops faced the royal troops of Siraj-ud-Daulah, Nawab of Bengal in the test that would determine the future of English presence in India. Clive sited his cannon under the shelter of trees. The Nawab sited his guns in the open plain. It was the rainy season and there was a sudden downpour just as the battle was joined, that wet the powder for the Nawab’s guns. Clive’s guns, in the shelter of trees were less affected. This difference in foresight was the main reason that the battle was won by the English.
© Ram Mudambi, Temple University, 2006

8. Strategic Planning Rational planning by top management?
Basic Strategic Planning Model
Defining the Mission and Setting Top-Level Goals
External Analysis of Opportunities and Threats
Internal Analysis of Strengths and Weaknesses
Selection of Appropriate Strategies
Implementation of Chosen Strategies
© Ram Mudambi, Temple University, 2006 4

9. The Main Components of the Strategic Planning Process SYLLABUS
TOPIC 1
TOPIC 4
External Analysis
Competitive Advantage
Internal Analysis
TOPIC 2
TOPIC 3
TOPIC 5
Contextual Analysis of Strategy
TOPIC 6
Corporate Strategy
Governance &
Ethics
Strategy Implementation
TOPIC 7
TOPIC 8
© Ram Mudambi, Temple University, 2006

10. The Main Components of the Strategic Planning Process TEXT
© Ram Mudambi, Temple University, 2006

11. Mission and Goals Mission Major goals - vision Secondary goals
Sets out why the organization exists and what it should be doing.
Major goals - vision
Specify what the organization hopes to fulfill in the medium to long term.
Secondary goals
Are objectives to be attained that lead to superior performance.
© Ram Mudambi, Temple University, 2006

12. Vision vs. Mission
A statement of purpose (strategic intent) committing the organization to ambitious overarching (stretch) goals.
Provides a sense of direction and purpose.
Drives strategic decision making and resource allocations.
Forces the seeking of significant performance improvements to attain goals.
© Ram Mudambi, Temple University, 2006

13. Customer Orientation and Business Definition
Abell’s Framework for Defining the Business
Consumer-oriented versus Product-oriented business definition
Source: Derek F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, N.J.: Prentice-Hall, 1980), p. 17.
© Ram Mudambi, Temple University, 2006

14. Values Johnson & Johnson’s credo sets its responsibilities to:
J&J product users.
J&J employees.
Communities in which J&J employees live and work.
J&J stockholders.
© Ram Mudambi, Temple University, 2006
Source: Courtesy of Johnson & Johnson.

15. External Analysis
Identify strategic opportunities and threats in the operating environment.
Immediate (Industry)
Macroenvironment
National
© Ram Mudambi, Temple University, 2006

16. Internal Analysis Identify strengths Identify weaknesses
Quality and quantity of resources available
Distinctive competencies
Identify weaknesses
Inadequate resources
Managerial and organizational deficiencies
© Ram Mudambi, Temple University, 2006

17. SWOT and Strategic Choice
Strengths and Weaknesses
Opportunities and Threats (SWOT Analysis)
Strategic Choice Functional
Business Global Corporate
© Ram Mudambi, Temple University, 2006

18. Company’s Business Model
Management’s model of how strategy will allow the company to gain competitive advantage and achieve superior profitability
A business model encompasses how the company will:
Select its customers
Define and differentiate its product offerings
Create value for its customers
Acquire and keep customers
Produce goods or services
Deliver those goods and services to the market
Organize activities within the company
Configure its resources
Achieve and sustain a high level of profitability
Grow the business over time
© Ram Mudambi, Temple University, 2006

19. Levels of Strategic Management
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20. Functional-Level Strategies
Focus is on improving the effectiveness of operations within a company.
Production
Operations
Marketing
Research and development
Human resources
© Ram Mudambi, Temple University, 2006

21. Business-Level Strategies
Cost leadership
Attaining, then using the lowest total cost basis as a competitive advantage.
Differentiation
Using product features or services to distinguish the firm’s offerings from its competitors.
Market niche focus
Concentrating competitively on a specific market segment.
© Ram Mudambi, Temple University, 2006

22. Corporate-Level Strategies
Vertical integration
Outsourcing
Diversification
Strategic alliances
Acquisitions
New ventures
Business portfolio restructuring
© Ram Mudambi, Temple University, 2006

23. Strategy Implementation
Structure
Designing organizational structure
Designing control systems
Market and output controls
Bureaucratic controls
Control through organizational culture
Rewards and incentives
Fit - Matching strategy, structure, and controls
Congruence among strategy, structure, and controls
Controls
Strategy
© Ram Mudambi, Temple University, 2006

24. Strategic Leadership
Good leaders of the strategy-making process have a number of key attributes:
Vision, eloquence, and consistency
Commitment
Being well informed
Willingness to delegate and empower
The astute use of power
Emotional intelligence
Self-awareness
Self-regulation
Motivation
Empathy
Social skills
© Ram Mudambi, Temple University, 2006

25. Strategy as an Emergent Process
Strategy making in an unpredictable world
Creates the necessity for flexible strategic approaches.
Strategy making by lower-level managers
Strategy evolves through autonomous action.
Serendipity and strategy
Accidental discoveries and happenstances can have dramatic effects on strategic direction.
Intended and emergent strategies
Realized strategies are combinations of intended and emergent strategies.
Intel is a good example of strategy-making my lower level managers. While the top brass was wedded to memory chips, lower level financial and operations managers saw these chips bleeding red ink and re-allocated resources away from them on a day-to-day basis, so that within a few years, , the company was de-facto re-positioned as a logic chip maker. - Gordon Moore
© Ram Mudambi, Temple University, 2006 29

26. Intended and Emergent Strategies
Source: Reprinted from “Strategy Formation in an Adhocracy,” by Henry Mintzberg and Alexandra McGugh, published in Administrative Science Quarterly, Vol. 30, No. 2, June 1985, by permission of Administrative Science Quarterly.
© Ram Mudambi, Temple University, 2006

27. The Strategic Management Process for Intended and Emergent Strategies
© Ram Mudambi, Temple University, 2006

28. Strategic Planning in Practice
Planning under uncertainty
Scenario planning for dynamic environmental change
Ivory tower planning
Lack of contact with operational realities
The importance of involving operating managers
Procedural justice in the decision-making process
Engagement, explanation, and expectations
Planning for the present: Strategic Intent
Recognition of the static nature of the strategic fit model
Strategic intent in focusing the organization on winning by achieving stretch goals
© Ram Mudambi, Temple University, 2006 33

29. Problems in Strategic Decision Making
1. Cognitive biases systematically influence the rationality of decision makers.
Mintzberg’s example of the Vietnam war
© Ram Mudambi, Temple University, 2006

30. Problems in Strategic Decision Making
2. Pitfalls of groupthink
Failing to question underlying assumptions.
Coalescing around a single person or policy.
Filtering out conflicting information.
Developing after-the-fact rationalizations.
Having an emotional (non-objective) commitment to an action.
© Ram Mudambi, Temple University, 2006 34

31. Techniques for Improving Decision Making
Two decision- making processes that counteract cognitive biases and groupthink.
© Ram Mudambi, Temple University, 2006

32. Summary What is strategy and strategic management?
Overview of the course
Strategic management in the firm
Intended and emergent strategies
Problems – sources and management
© Ram Mudambi, Temple University, 2006