Chapter 1 Introducing Strategic Management

Copyright © 2012 Pearson Canada Inc. 1

Chapter 1Introducing Strategic

Management


LEARNING OBJECTIVES

1. Understand what a strategy is and identify the difference between business-level and corporate-level strategy.

2. Understand why we study strategic management.

3. Understand the relationship between strategy formulation and implementation.

4. Describe the determinants of competitive advantage.

5. Recognize the difference between a fundamental view and the dynamic view of competitive advantage.


Three Overarching Themes

Implementing a good strategy is at least as important as creating one, yet many managers give too little thought to implementation

Strategic leadership is responsible for

making substantive resource allocation decisions and

developing key-stakeholder support of the strategy

We need to see a firm’s competitive position, not as a snapshot, but as an ongoing movie

Firms and industries are

dynamic in nature

To succeed,the formulation

of a good strategy and its implementa-

tion should be inextricably connected

Strategic leader-ship is essential for a firm to be able to both formulate and imple-ment strategies that

create value


What is Strategic Management?

General

Lower officer (e.g., supply logistics infantry, heavy armoured vehicles)

Strategos: “the general’s view”

Holistic “big picture”

Tactical details



Why Study Strategy?

1. You will be more effective in carrying out the general manager’s plans because your functional contributions will fit better with those of other functions.

2. You will appreciate why strategic leaders do not do what you think is best because they have to make tradeoffs in pursuit of what is best for the company. This makes you more understanding of the roles of others in the company and more accommodating of their needs.



Strategic Analysis• Internal

• External

Vision and Mission

• Fundamental organizational purpose

• Organizational values

Strategy• Arenas• Vehicles• Differentiators• Staging• Economic logic

The coordinated means by which an

organization pursues its goals and objectives

Implementation Levers

and

Strategic Leadership

Goals and Objectives

• Specific targets


Unit of measure

??

Corporate-level strategy should ask• In which markets do we compete today?• In which markets do we want to

compete tomorrow?• How does our ownership of a business

ensure its competitiveness today and in the future?

• How do we compete in this market today?

• How will we compete in this market in the future?

Business-level strategy should ask



Strategy Formulation and Implementation

Strategy Formulation is the process of deciding what the strategy will be.

Strategy Implementation is the process of performing all the activities necessary to make the strategy a reality.



Staging& Pacing

Differentiators

Economic logic Vehicles

Arenas

• What will be our speed and sequence of moves?– Speed of expansion?– Sequence of initiatives?

Staging & Pacing

• How will returns be obtained?– Lowest costs through scale

advantages?– Lowest costs through scope

and replication advantages?– Premium prices due to

unmatchable service?– Premium prices due to

proprietary product features?

Economic logic

• How will we get there?– Internal development?– Joint ventures?– Licensing/franchising?– Alliances?– Acquisitions?

Vehicles

• How will we win?– Image?– Customization?– Price?– Styling?– Product reliability?– Speed to market?

Differentiators

• Where will we be active? (and with how much emphasis?)– Which product categories?– Which channels?– Which market segments?– Which geographic areas?– Which core technologies– Which value-creation strategies?

Arenas

The Business Strategy Diamond



Arenas

By arenas, we mean areas in which a company will be active. Decisions about a company’s arenas may encompass its products, services, distribution channels, market segments, geographic areas, technologies, and even stages of the value-creation process.

Vehicles

Vehicles are the means for participating in targeted arenas. For instance, a company that wants to go international can achieve that objective indifferent ways.



Differentiators

The company that understands why its customers regularly choose its products or services over those of competitors has identified its differentiators. The output of differentiators can be seen in the featuresand attributes of a company’s products or services that help it win sales.

Staging

Staging refers to the timing and pace of strategic moves. Staging choices typically reflect available resources, including cash, human capital, and knowledge.



Economic Logic

Most of the companies you will study are likely to be for-profit companies and so will have earning an economic profit as a key objective.



To make sure strategy formulation is comprehensive and well informed

1

To translate good ideas into actions that can be executed (and sometimes to use execution to generate or identify good ideas)

2

The Goals of Strategy Implementation



IntendedStrategy

Realized Strategy

Framework for Strategy Implementation

Implementation levers• Organizational structure• Systems and processes• People and rewards

Strategic leadership• Lever- and resource-allocation decisions• Decision support among stakeholders



Implementation Lever - Organizational Structure

Structure is the manner in which responsibilities, tasks, and people are organized. It includes the organization’s authority, hierarchy, units, divisions, and coordinating mechanisms.

Key structural questions that managers must consider when implementing a strategy:

■ Is the current structure appropriate for the intended strategy?■ Are reporting relationships and the delegation of authority set up to execute the strategic plan?■ Is the organization too centralized (or decentralized) for the strategy?



Implementation Lever – Systems and Processes

Systems and processes are all the organizational processes and procedures that plan, coordinate, and control the work of people in the organization. They include control and incentive systems, resource- allocation procedures, information systems, budgeting, distribution, and so forth.



Implementation Lever – People and Rewards

The people and rewards lever of the model underscores the importance of using all of the organization’s members to implement a strategy. Regardless of the strategy, at the end of the day, the people in the organization will have to implement it. Competitive advantage is generally tied to the company’s human resources.


Strategic Formulation and Implementation

Strategic Leadership

Strategic leadership plays two critical roles in successful implementation of a strategy:

(1) making substantive implementation lever and resource-allocation decisions, and

(2) developing and maintaining support for the strategy from key stakeholders.


What is Competitive Advantage?

Competitive Advantage: a firm’s ability to create value in a way that its rivals cannot.

Key question: How do firms create sustained above-average returns?


What is Competitive Advantage?

Dynamic

Suggests that in dynamic, rapidly changing markets, a firm’s current market position is not an accurate prediction of future performance. Instead, we look at the past for clues about how the firm arrived at its current position and to future trends – both internal and external – in an effort to predict the future landscape

Internal

Often called the “resource view,” contends that firms are heterogeneous bundles of resources and capabilities and firms with superior resources and capabilities enjoy competitive advantage over other firms. This advantage makes it relatively easier to achieve consistently higher levels of performance.

External

Also called the “positional view,” contends that variations in a firm’s competitive advantage and performance are primarily a function of industry attractiveness. Companies should therefore either (1) position themselves to compete in attractive industries or (2) adopt strategies that will make their current industries more attractive.

Three Perspectives on Competitive Advantage

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Chapter 1 Introducing Strategic Management