Strategic Management (MGT501) Lecture 16 Dr Muhammad Mustafa Raziq

Topic Covered in the Previous Lecture Organizational Appraisal and Strategic Management Process Strategic Planning

Topics to be covered in this lecture Strategic Planning Strategic Thinking Generic Competitive Strategies

5.2.4. Types of Strategies Grand strategies that provide basic direction for strategic actions are formulated based on a core idea about how the firm can best achieve its long-term objectives. The common name for this core idea is generic strategy such as: Low-cost Differentiation Focus (concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation) Leveraging (Using the power of an existing resource/competence (e.g. brand name) to support a company's entry into a new, but related, product category) Customer intimacy Product leadership

5.2.5. Merits and Limitation of Strategic Planning In fast moving or turbulent environments it is difficult to plan, and in an opportunity-rich environment, planning can suffocate creativity and hinder entrepreneurial activity as planning assumes that there is one best way to proceed. However, a strategic plan is an important communication for shared understanding of where the organizations intends to go. A plan with flexibility for interposition from the outputs or periodic inspections provides momentum towards the vision. It articulates well the strategic or long term intentions of the organization to guide implementation decisions.

5.3. Strategic Thinking It is a way of understanding the fundamental drivers of a business, challenging the assumptions about a firm’s value proposition and uncovering potential opportunities for creating value It is creative and participatory dialog among the people in a firm or among its stakeholders who can affect a firm’s direction. Strategic thinking takes into account competencies, markets, competition, products, environments, and industry characteristics seeking value creation opportunities. Strategic thinking is essential to develop a good strategic plan. It is a particular way of solving strategic problems at the individual and the institutional levels combining rational and generative though processes (Shannassy, 2003)

5.3. Strategic Thinking (CONTINUED) The specific elements of strategic thinking in an organization are as follows: A complete mental picture of the complete system of value creation within the organization A clear understanding of each individual’s role within the larger organization systems Access to four categories of flexible inputs: technology, people, structure and processes A focus on scientific orientation in problem solving by identifying problems, hypotheses or propositions for investigation with an understanding of the wider business context.

5.3. Strategic Thinking (CONTINUED) The specific elements of strategic thinking in an organization are as follows (continued): Participation of internal and external stakeholders A clear statement of the organization’s strategic intent, providing focus to allow employees to divert or redirect their efforts Consideration of the past, present and future of the organization, emphasizing the cultural legacy of problem solving and decision-making style Outcome of strategic thinking as a solution to strategic problems and a conceptualization of the future of the firm Firms have an eight ray model of strategic thinking to guide strategic thinking in the organization. Strategic thinking is a prerequisite to develop the strategic architecture of the firm.

An Eight ray model of Strategic Thinking in Business Organizations Skills (people) Stimulus (threats, opportunities, intelligence) Synergy Systems Salience (Mission, Vision, Values) Sustainability Surplus Super Support (Leadership, Governance)

5.3.1. Strategic Architecture Strategic architecture is a vocal map of the future that identifies which core competences to build and their constituent technologies (Hamel and Prahalad, 1990). It enables and facilitates the desired connection of the firm to its customers and markets. Sharnassy and Hunter (2008) pose three primary questions to develop the strategic architecture of the firm and to give different organizational performance perspectives What we have? (it is all tangible and intangible resources) What we do? (innovations, operations, delivery) To whom we do? (decisions on customer segments, product, price, place, promotion)

5.3.2. Strategic Intent Strategic intent is simply the vision. It reflects the ambitions of the company, an obsession with this ambition, and sustaining this obsession for many years till winning. It is an obsession to pursue the ambition – it sustains enthusiasm and guides resource allocations It is a statement of the means or design by which the firm will achieve its vision. It is clear about the ends, but flexible about the means, leaving room for improvisation. It creates an extreme misfit between existing resources and corporate ambitions, thereby making the firm more inventive and creative to stretch to the maximum its capabilities and resources

5.4. Generic Competitive Strategies Porter proposes three generic strategies as follows: Overall cost leadership Differentiation Focus

5.4.1. Low-Cost Strategy An enterprise succeeds if it has an overall less cost structure than its competitors. There exists potential to reduce costs by some source; be it from learning effects (experience curve), economies of scale, and economies of scope. Best Cost-Focused Strategies: costs can be reduced by several means as follows: Input/resource reduction Improvement in process technologies Employee learning effects

5.4.1. Low-Cost Strategy (continued) Best Cost-Focused Strategies (continued): costs can be reduced by several means as follows: Vertical integration Favorable access to raw materials Anticipating and minimizing risks Reduce transportation costs, waste and pollution, and costs in functional/operational areas

Summary of the topics covered in this lecture Strategic Planning Strategic Thinking Generic Competitive Strategies

Topics for the next lecture Generic Competitive Strategies Strategy Levels First Mover Advantages