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Introduction to strategic management

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Bibhuti Kumar
Bibhuti Kumar

This document provides an introduction to strategic management and business policy. It discusses the historical development of strategic management, key concepts like strategy and strategic decision-making. It also outlines several schools of thought on strategy formation and summarizes the strategic management process as involving establishing strategic intent, formulating strategies, implementing strategies, and evaluating strategies.

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STRATEGIC MANAGEMENT AND BUSINESS POLICY STRAT 401 Introduction to strategic management and business policy
Learning objectives  Historical development of strategic management and business policy in the world and in India  Concept of strategy and its limitations  Process of strategic decision making  Various schools of thought on strategy formation  Strategic management process 2
Evolution of strategic management and business policy  The genesis of strategic management and business policy- 1911 Harvard Business School  Evolution based on management practices- MBO Capital Budgeting etc  Historical perspective- Acc. to hofer  Adhoc policy making, 1930’s  Planned policy formulation 1940-50  Strategy paradigm 1960’s  Current- Strategic Management  Pointers to the future  Development of strategic thinking  Alternative models like of Hambrick & fredrickson 3
Hambrick and Fredrickson model of strategic management Internal and External Strategic Analysis Strategy: Arenas Vision and Goals and Vehicles Implementation Levers Mission Objectives Differentiators and Strategic Staging Leadership Economic logic D. C. Hambrick & J. W. Fredrickson: “Are you sure you have a strategy?” (2001). Academy of Management Executive Vol. 15, No. 4, pp. 48-59 4
The Indian scenario  Role of IIMs and ASCI  Role of AICTE  Role of AIMS  Role of AIMA  India-focused international studies  Strategic Management Forum of India  Publications 5
Business policy defined  Business policy, as defined by Christensen and others, is "the study of the function and responsibilities of senior management, the crucial problems that affect success in the total enterprise, and the decisions that determine the direction of the organisation and shape its future. The problems of policy in business, like those of policy in public affairs, have to do with the choice of purposes, the moulding of organisational identity and character, the continuous definition of what needs to be done, and the mobilisation of resources for the attainment of goals in the face of competition or adverse circumstance”. 6
Strategy  Term derived from Greek word strategos meaning generalship- the actual direction of military force as distinct from the policy governing its deployment.
The concept of strategy A strategy could be:  plan or course of action or a set of decision rules making a pattern or creating a common thread;  the pattern or common thread related to the organisation's activities which are derived from the policies, objectives and goals;  related to pursuing those activities which move an organisation from its current position to a desired future state;  concerned with the resources necessary for implementing a plan or following a course of action; and  connected to the strategic positioning of a firm, making trade- offs between its different activities, and creating a fit among these activities.  the planned or actual coordination of the firm's major goals and actions, in time and space that continuously co-align the firm with its environment. 8
Change Time
Time Where we Where we want to be? are?
 A global economy is one which goods, services, people, skills and ideas move freely across geographic borders.  Europe is now world’s largest market.  GDP 35% more than US.  China extremely competitive market. Source of low cost goods  GE headquartered in US, will have 60% revenue from developing countries 2015.
 Globalization is the increasing economic interdependence among countries and their organization as reflected in the flow of goods and services, financial capital knowledge across country border.  Wal-Mart- Boundary-less retailing, global pricing, sourcing and logistics  Globalization- Design, production, distribution and servicing of goods and services.
 N=1  Serving one customer at a time.  R=G  Resource = Global  Radius of operation= Global  Characteristics  Node within a global web  Personalized experience  Co-creation  Celebration of individual  Thematic experience  Delivery Network
 A strategy is an integrated and coordinated set commitments and actions designed to exploit core competencies and gain a competitive advantage.  Integrated  Two or more component merged together into a single system  Core Competencies  Specific factor that a business sees as being central to the way it works.  Competitive advantage  A strategy competitors are unable to duplicate or find to costly to try to imitate
 “A unified, comprehensive, and integrated plan designed to ensure that the basic objectives of the enterprise are achieved.” (Glueck, 1980)  “The pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole.” (Quinn, 1980)  “A pattern of resource allocation that enables firms to maintain or improve their performance.
 Increasing rate of change and diffusion  Perpetual Innovation  Continuous and carry high priority  Shorter life cycle  Rapid diffusion of innovation  Replicated within short period  Speed to market may become a source of competitive advantage  The information age  Companies are wired  Customers  Employees  Vendors
 Increasing Knowledge Intensity  Converting accumulated knowledge of employees into corporate asset  Shareholder value is increasingly influenced by the firm’s intangible assets such as knowledge  From assessing information to exploiting information  Capturing intelligence  Transforming intelligence into usable knowledge  Embedding it as organizational learning  Diffusing it rapidly throughout the organization
 1996 takeover of tandem computers  1998 took over digital  1999 CEO, Pfeiffer Sacked, Why?  By 1995 Compaq become leading seller of PC  Purchase of DEC also made it leading computer service firm competing with IBM.  Compaq lost focus of selling PC, went behind Dell in Internet selling.  Announced a bigger move in web sales  Reseller become anxious  Announced number of reseller to de downsized to 4 from 20.  1998, in charge of service business resigned.  Creating further uncertainty about their future  2002 taken over by HP
 Valuable Valuable Rare  Allow the firm to exploit opportunities or neutralize threats in its external environment. Organized  Rare  Possessed by few, if any, current and potential competitors Costly  Costly to imitate  When other firms cannot obtain them or must obtain them at much higher cost  Organized to be exploited Core Competence  The firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage.
Levels at which strategy operates LEVELS OF MANAGEMENT LEVELS OF STRATEGY Corporate CORPORATE Office CORPORATE-LEVEL SBU SBU SBU SBU A B C BUSINESS-LEVEL FUNCTIONAL Finance Marketing Operations HRM Information
Strategic decision-making  Objectives to be achieved are determined;  Alternative ways of achieving the objectives are identified;  Each alternative is evaluated in terms of its objective-achieving ability; and  The best alternative is chosen. 21
Issues in strategic decision-making  Criteria for decision-making  Rationality in decision-making  Creativity in decision-making  Variability in decision-making  Person-related factors in decision- making  Individual versus group decision- making. 22
Schools of thought on strategy formation  The prescriptive schools  The descriptive schools  The integrative school 23
Strategic management defined  Strategic management is defined as the dynamic process of formulation, implementation, evaluation and control of strategies to realise the organization’s strategic intent. 24
Four phases in strategic management Establishment of strategic Formulation of Implementation of Strategic intent strategies strategies evaluation Strategic control 25
Comprehensive model of strategic management Strategic Intent Strategy Formulation Strategy Strategic Implementation Evaluation Vision Environmental Organisational Mission Appraisal Appraisal Project Business definition SWOT Analysis Procedural Business model Corporate-level Strategies Resource allocation Objectives Business-level Strategies Structural Strategic analysis and choice Behavioural Strategic plan Functional & Operational Strategic control 26

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Introduction to strategic management

  • 1. STRATEGIC MANAGEMENT AND BUSINESS POLICY STRAT 401 Introduction to strategic management and business policy
  • 2. Learning objectives  Historical development of strategic management and business policy in the world and in India  Concept of strategy and its limitations  Process of strategic decision making  Various schools of thought on strategy formation  Strategic management process 2
  • 3. Evolution of strategic management and business policy  The genesis of strategic management and business policy- 1911 Harvard Business School  Evolution based on management practices- MBO Capital Budgeting etc  Historical perspective- Acc. to hofer  Adhoc policy making, 1930’s  Planned policy formulation 1940-50  Strategy paradigm 1960’s  Current- Strategic Management  Pointers to the future  Development of strategic thinking  Alternative models like of Hambrick & fredrickson 3
  • 4. Hambrick and Fredrickson model of strategic management Internal and External Strategic Analysis Strategy: Arenas Vision and Goals and Vehicles Implementation Levers Mission Objectives Differentiators and Strategic Staging Leadership Economic logic D. C. Hambrick & J. W. Fredrickson: “Are you sure you have a strategy?” (2001). Academy of Management Executive Vol. 15, No. 4, pp. 48-59 4
  • 5. The Indian scenario  Role of IIMs and ASCI  Role of AICTE  Role of AIMS  Role of AIMA  India-focused international studies  Strategic Management Forum of India  Publications 5
  • 6. Business policy defined  Business policy, as defined by Christensen and others, is "the study of the function and responsibilities of senior management, the crucial problems that affect success in the total enterprise, and the decisions that determine the direction of the organisation and shape its future. The problems of policy in business, like those of policy in public affairs, have to do with the choice of purposes, the moulding of organisational identity and character, the continuous definition of what needs to be done, and the mobilisation of resources for the attainment of goals in the face of competition or adverse circumstance”. 6
  • 7. Strategy  Term derived from Greek word strategos meaning generalship- the actual direction of military force as distinct from the policy governing its deployment.
  • 8. The concept of strategy A strategy could be:  plan or course of action or a set of decision rules making a pattern or creating a common thread;  the pattern or common thread related to the organisation's activities which are derived from the policies, objectives and goals;  related to pursuing those activities which move an organisation from its current position to a desired future state;  concerned with the resources necessary for implementing a plan or following a course of action; and  connected to the strategic positioning of a firm, making trade- offs between its different activities, and creating a fit among these activities.  the planned or actual coordination of the firm's major goals and actions, in time and space that continuously co-align the firm with its environment. 8
  • 9. Change Time
  • 10. Time Where we Where we want to be? are?
  • 11.  A global economy is one which goods, services, people, skills and ideas move freely across geographic borders.  Europe is now world’s largest market.  GDP 35% more than US.  China extremely competitive market. Source of low cost goods  GE headquartered in US, will have 60% revenue from developing countries 2015.
  • 12.  Globalization is the increasing economic interdependence among countries and their organization as reflected in the flow of goods and services, financial capital knowledge across country border.  Wal-Mart- Boundary-less retailing, global pricing, sourcing and logistics  Globalization- Design, production, distribution and servicing of goods and services.
  • 13.  N=1  Serving one customer at a time.  R=G  Resource = Global  Radius of operation= Global  Characteristics  Node within a global web  Personalized experience  Co-creation  Celebration of individual  Thematic experience  Delivery Network
  • 14.  A strategy is an integrated and coordinated set commitments and actions designed to exploit core competencies and gain a competitive advantage.  Integrated  Two or more component merged together into a single system  Core Competencies  Specific factor that a business sees as being central to the way it works.  Competitive advantage  A strategy competitors are unable to duplicate or find to costly to try to imitate
  • 15.  “A unified, comprehensive, and integrated plan designed to ensure that the basic objectives of the enterprise are achieved.” (Glueck, 1980)  “The pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole.” (Quinn, 1980)  “A pattern of resource allocation that enables firms to maintain or improve their performance.
  • 16.  Increasing rate of change and diffusion  Perpetual Innovation  Continuous and carry high priority  Shorter life cycle  Rapid diffusion of innovation  Replicated within short period  Speed to market may become a source of competitive advantage  The information age  Companies are wired  Customers  Employees  Vendors
  • 17.  Increasing Knowledge Intensity  Converting accumulated knowledge of employees into corporate asset  Shareholder value is increasingly influenced by the firm’s intangible assets such as knowledge  From assessing information to exploiting information  Capturing intelligence  Transforming intelligence into usable knowledge  Embedding it as organizational learning  Diffusing it rapidly throughout the organization
  • 18.  1996 takeover of tandem computers  1998 took over digital  1999 CEO, Pfeiffer Sacked, Why?  By 1995 Compaq become leading seller of PC  Purchase of DEC also made it leading computer service firm competing with IBM.  Compaq lost focus of selling PC, went behind Dell in Internet selling.  Announced a bigger move in web sales  Reseller become anxious  Announced number of reseller to de downsized to 4 from 20.  1998, in charge of service business resigned.  Creating further uncertainty about their future  2002 taken over by HP
  • 19.  Valuable Valuable Rare  Allow the firm to exploit opportunities or neutralize threats in its external environment. Organized  Rare  Possessed by few, if any, current and potential competitors Costly  Costly to imitate  When other firms cannot obtain them or must obtain them at much higher cost  Organized to be exploited Core Competence  The firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage.
  • 20. Levels at which strategy operates LEVELS OF MANAGEMENT LEVELS OF STRATEGY Corporate CORPORATE Office CORPORATE-LEVEL SBU SBU SBU SBU A B C BUSINESS-LEVEL FUNCTIONAL Finance Marketing Operations HRM Information
  • 21. Strategic decision-making  Objectives to be achieved are determined;  Alternative ways of achieving the objectives are identified;  Each alternative is evaluated in terms of its objective-achieving ability; and  The best alternative is chosen. 21
  • 22. Issues in strategic decision-making  Criteria for decision-making  Rationality in decision-making  Creativity in decision-making  Variability in decision-making  Person-related factors in decision- making  Individual versus group decision- making. 22
  • 23. Schools of thought on strategy formation  The prescriptive schools  The descriptive schools  The integrative school 23
  • 24. Strategic management defined  Strategic management is defined as the dynamic process of formulation, implementation, evaluation and control of strategies to realise the organization’s strategic intent. 24
  • 25. Four phases in strategic management Establishment of strategic Formulation of Implementation of Strategic intent strategies strategies evaluation Strategic control 25
  • 26. Comprehensive model of strategic management Strategic Intent Strategy Formulation Strategy Strategic Implementation Evaluation Vision Environmental Organisational Mission Appraisal Appraisal Project Business definition SWOT Analysis Procedural Business model Corporate-level Strategies Resource allocation Objectives Business-level Strategies Structural Strategic analysis and choice Behavioural Strategic plan Functional & Operational Strategic control 26