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

Today’s pace of change is accelerating Manager’s must make major and minor changes in strategic direction

Leaders must be: -Proactive -Anticipate change -Continually refine and -Make strategic changes 1 - 5www.paperhint.com

Consists of competitive moves and business approaches used by managers to run the company

Management’s “action plan” to - Grow the business -Attract and please customers -Compete successfully -Conduct operations -Achieve target levels of organizational performance

1 - 8 Strategic Management Elements –Analysis Strategic goals (vision, mission, strategic objectives) Internal and external environment of the firm

1 - 9 Strategic Management Elements –Strategic decisions What industries should we compete in? How should we compete in those industries?

Strategic Management Elements – Actions Allocate necessary resources Design the organization to bring intended strategies to reality

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

Strategic Inflection Point Business prospers Business declines The Nature of Strategic Management

The Four Key Attributes of Strategic Management Directs the organization toward overall goals and objectives

Includes multiple stakeholders in decision making

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

Recognizes trade-offs between efficiency and effectiveness

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

Intended Versus Realized Strategies © 2009 The McGraw-Hill Companies, Inc. All rights reserved.

Intended Versus Realized Strategies The final realized strategy of any firm is a combination of deliberate and emergent strategies.

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) Strategy Context

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 firm’s market position via acquisitions or new product introductions –Pursuing ways to strengthen firm’s competitive capabilities –Proactively searching out opportunities to Do new things Do existing things in new or better ways

The Key Processes –Strategy Analysis –Strategy Formulation –Strategy Implementation Key Strategic Management Processes

Strategy Analysis –Starting point in the strategic management process –Precedes effective formulation and implementation of strategies 1-23 Key Strategic Management Processes

Frameworks for analyzing a firm’s internal environment –Strengths –Weaknesses Analyzing strengths can uncover potential sources of competitive advantage Analyzing external environments –Competitors –General environment –Industry environment

Company’s Strategies –Best indicators Actions in the marketplace Statements of senior managers

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

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 1-27 Key Strategic Management Processes

Strategy Formulation (Continued) Corporate-level strategy addresses: –Firm’s portfolio or group of businesses What business(es) should we be in? How can we create synergies among the businesses? –Diversification Related Unrelated

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 Key Strategic Management Processes

Tests of a Winning Strategy –GOODNESS OF FIT TEST How well does strategy fit the firm’s situation? –Resources –Culture –Structure –COMPETITIVE ADVANTAGE TEST Does strategy lead to sustainable competitive advantage? –PERFORMANCE TEST Does strategy boost firm performance? Key Strategic Management Processes

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

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 Resource-Based View of the Firm

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.

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

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

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

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 won’t last forever

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

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