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Strategic
Management
BMGT 413
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What is Strategy?
Strategy is the overall plan for
deploying resources to establish a
favorable position.
Tactic is a scheme for a specific
maneuver.
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3
A DEFINITION OF STRATEGY
 Strategy is the direction and scope of an
organisation over the long term which
 achieves advantage for the organisation
 through its configuration of resources within
 a changing environment to meet the needs
 of markets and to fulfil stakeholder
 expectations.
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LEVELS OF STRATEGY (1)
 Corporate Level strategic decisions are concerned
with:
 overall purpose and scope
 adding value to shareholder investment
 portfolio issues
 resource allocation between SBUs
 structure and control of SBUs
 corporate financial strategy
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LEVELS OF STRATEGY (2)
 Business Unit strategy is concerned with:
 competitive strategy
 developing market opportunities
 developing new products/services
 resource allocation within the SBU
 structure and control of the SBU
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LEVELS OF STRATEGY (3)
 Operational Strategies are concerned with:
 the integration of resources, processes, people and
skills
 to implement strategy
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Purpose of strategy
 To position or set direction within environment
 To focus effort within the organization
 To define the organization, to give meaning to the organization’s
activities
 To provide consistency
 For efficiency & focus
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 Characteristics of strategic decisions…
 Important
 Involve a significant commitment of resources
 Not easily reversible
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Thinking Strategically:
The Three Big Strategic Questions
 1. Where are we now -- what is our situation?
 2. Where do we want to go?
 3. How will we get there?
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What Is Strategy?
Concept
 Competitive moves and business approaches management
employs in running a company
 Management’s “game plan” to
 Please customers
 Position a company in its chosen market
 Compete successfully
 Achieve good business performance
A. Thompson, Jr. & A. J. Strickland, (1998)I
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Basic Framework
Involves
External
Environment
The firm
Goals & Values
Resources &
Capabilities
Structures &
Systems
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Competitors
Strategy
Customers
Suppliers
etc
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
Missions vs. Strategic
Visions
A mission statement focuses on
current business activities

For example:

Customer needs
currently being
served

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A strategic vision concerns a
firm’s future business path

The kind of
company it is
trying to become

Customer needs to
be satisfied in the
future
Developing a Strategic Vision
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
A strategic vision is a
roadmap of a
company’s future -
Direction it is headed

Business position it
intends to stake out

Capabilities it plans to
develop

Customer needs it
intends to serve
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TERM
DEFINITION
Mission
Overriding purpose in line
with the values or
expectations of stakeholders
Vision or strategic
intent
Desired future state: the
aspiration of the organisation
Goal
General statement of aim or
purpose
Core competences

Resources, processes or skills
which provide ‘competitive
advantage’
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Definitions
Strategic Management Process
The full set of commitments, decisions,
and actions required for a firm to create
value and earn above-average returns
Value Creation
What is achieved when a firm
successfully formulates and implements a
strategy that other companies are unable
to duplicate or find too costly to imitate.
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Definitions
Average Returns
Returns that are equal to those an investor
expects to earn from other investments with
a similar amount of risk
Above-Average Returns
Returns that are in excess of what an investor
expects to earn from other investments with a
similar amount of risk
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Definitions
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Risk
An investor’s uncertainty about the
economic gains or losses that will result
from a particular investment
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The Five Tasks
of Strategic Management
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Task 2
Task 3
Task 4
Task 5
Develop a
Strategic
Vision
& Mission
Set
Objectives
Craft a
Strategy
to Achieve
Objectives
Implement
& Execute
Strategy
Evaluate &
Make
Corrections
Revise as
Needed
Revise as
Needed
Improve/
Change
Improve/
Change
Recycle
as Needed
Task 1
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Competitive Landscape
Dynamics of strategic
maneuvering among
global and innovative
combatants
Price-quality
positioning, new knowhow, first mover
Hypercompetitive
environments
Fundamental nature of
competition is changing
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Protect or invade
established product or
geographic markets
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Competitive Landscape
Emergence of
global economy
Goods, services, people,
skills, and ideas move
freely across geographic
borders
Spread of economic
innovations around the
world
Hypercompetitive
environments
Fundamental nature of
competition is changing
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Political and cultural
adjustments are
required
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Competitive Landscape
Emergence of
global economy
Rapid technological
change
Increasing rate of
technological change and
diffusion
The information age
Increasing knowledge
intensity
Hypercompetitive
environments
Fundamental nature of
competition is changing
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Expectations and
Expectations
purposes
and purposes
Resources,
competences
and capability
The
environment
Strategic
analysis
Bases
of strategic
choice
Organisation
structure and
design
Strategic
choice
Strategic
options
Strategy
evaluation and
selection
Strategy
implementation
Managing
strategic
change
Resource
allocation and
control
A summary model of the elements of strategic management
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Strategic Flexibility
A set of capabilities used to respond to
various demands and opportunities
existing in a dynamic and uncertain
competitive environment
It involves coping with uncertainty and the
accompanying risks
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Strategic Flexibility
Organizational
slack
Strategic
reorientation
Capacity to
learn
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Strategic
Flexibility
flexibility
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I/O Model of Above-Average Returns
1. External Environments
General
Global
Industry
Environment
Competitor
Environment
Technological
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Environment
1. Strategy dictated by the
external environment of
the firm (what
opportunities exist in
these environments?)
2. Firm develops internal
skills required by
external environment
(what can the firm do
about the opportunities?)
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Four Assumptions of the I/O Model
1. The external environment is assumed to
possess pressures and constraints that
determine the strategies that would
result in above-average returns
2. Most firms competing within a particular
industry or within a certain segment of it
are assumed to control similar
strategically relevant resources and to
pursue similar strategies in light of those
resources
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Four Assumptions of the I/O Model
3. Resources used to implement strategies
are highly mobile across firms
4. Organizational decision makers are
assumed to be rational and committed
to acting in the firm’s best interests, as
shown by their profit-maximizing
behaviors
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I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment
1. Study the external
environment, especially the
industry environment
• economies of scale
• barriers to market entry
• diversification
• product differentiation
• degree of concentration of
firms in the industry
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I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment
2. Locate an attractive industry
with a high potential for
above-average returns
An Attractive Industry
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Attractive industry: one whose
structural characteristics
suggest above-average returns
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I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment
3. Identify the strategy called
for by the attractive industry
to earn above-average returns
An Attractive Industry
Strategy Formulation
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Strategy formulation: selection
of a strategy linked with
above-average returns in a
particular industry
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I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment
4. Develop or acquire assets and
skills needed to implement
the strategy
An Attractive Industry
Strategy Formulation
Assets and Skills
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Assets and skills: those assets
and skills required to
implement a chosen strategy
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I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment
5. Use the firm’s strengths (its
developed or acquired assets
and skills) to implement the
strategy
An Attractive Industry
Strategy Formulation
Assets and Skills
Strategy Implementation
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Strategy implementation: select
strategic actions linked with
effective implementation of the
chosen strategy
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I/O Model of Above-Average Returns
Industrial Organization
Model
The External Environment
An Attractive Industry
Strategy Formulation
Assets and Skills
Strategy Implementation
Superior Returns
Prepared by Dr Kamau – [email protected]
Superior returns: earning
of above-average returns
Resource-based Model of Above Average
Returns
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1. Firm’s Resources
1. Strategy dictated by the
firm’s unique resources
and capabilities
2. Find an environment in
which to exploit these
assets (where are the best
opportunities?)
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Resource-based
Model of Above Average Returns
Resource-based
Model
Resources
1. Identify the firm’s resources-strengths and weaknesses
compared with competitors
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Resources: inputs into a firm’s
production process
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Resource-based
Model of Above Average Returns
Resource-based
Model
Resources
2. Determine the firm’s
capabilities--what it can do
better than its competitors
Capability
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Capability: capacity of an
integrated set of resources to
integratively perform a task or
activity
Four Attributes of Resources and
Capabilities (Competitive Advantage)
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Rare
Costly to imitate
Nonsubstitutable
Resources and Capabilities
Valuable
allow the firm to exploit opportunities or
neutralize threats in its external
environment
possessed by few, if any, current and
potential competitors
when other firms cannot obtain them or
must obtain them at a much higher cost
the firm is organized appropriately to
obtain the full benefits of the resources in
order to realize a competitive advantage
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Resources and capabilities that meet
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these four criteria become a source of:
Rare
Costly to imitate
Nonsubstitutable
Resources and Capabilities
Valuable
Core Competencies
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Core Competencies are the basis for a firm’s
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Competitive
advantage
Value Creation
Core Competencies
Ability to earn
above-average
returns
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Resource-based
Model of Above Average Returns
Resource-based
Model
Resources
3. Determine the potential of the
firm’s resources and
capabilities in terms of a
competitive advantage
Capability
Competitive Advantage
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Competitive advantage: ability
of a firm to outperform its
rivals
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Resource-based
Model of Above Average Returns
Resource-based
Model
4. Locate an attractive industry
Resources
Capability
Competitive Advantage
An Attractive Industry
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An attractive industry: an
industry with opportunities that
can be exploited by the firm’s
resources and capabilities
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Resource-based
Model of Above Average Returns
Resource-based
Model
Resources
Capability
5. Select a strategy that best
allows the firm to utilize its
resources and capabilities
relative to opportunities in
the external environment
Competitive Advantage
An Attractive Industry
Strategy Form/Impl
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Strategy formulation and
implementation: strategic
actions taken to earn above
average returns
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Resource-based
Model of Above Average Returns
Resource-based
Model
Resources
Capability
Competitive Advantage
An Attractive Industry
Strategy Form/Impl
Superior Returns
Prepared by Dr Kamau – [email protected]
Superior returns: earning
of above-average returns
Strategic Intent & Mission
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 Strategic Intent


Winning competitive battles by leveraging the firm’s
resources, capabilities, and core competencies
Strategic Mission

An application of strategic intent in terms of products to be
offered and markets to be served
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Emergent and Deliberate Strategies
Intended
Strategy
Deliberate
Strategy
Unrealized
Strategy
Realized
Strategy
Emergent
Strategy
From “Strategy Formation in an Adhocracy” by Henry Mintzberg and Alexandra McHugh, Administrative Science Quarterly,
Prepared by Dr Kamau – [email protected]
Vol. 30, No. 2, June 1985. Reprinted by permission of Administrative Science Quarterly.
46Strategic
Management Process for Intended
Strategies
Missions
and Goals
External
Analysis
Strategic
Choice
INTENDED STRATEGY
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Organizing for
Implementation
Internal
Analysis
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Strategic
Management Process for Emergent
Strategies
External
Analysis
Missions
and Goals
Strategic Choice
Does It Fit?
EMERGENT STRATEGY
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Organizational
Grassroots
Internal
Analysis
The Firm and Its Stakeholders
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Stakeholders
Groups
The firmwho
must
aremaintain
affected by a
firm’s
performance
performance
at an adequate
and who
have
level claims
in orderontoits
retain
wealth
the
participation of key
stakeholders
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The Firm and Its Stakeholders
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Stakeholders
Capital Market Stakeholders
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Shareholders
Major suppliers of capital
•Banks
•Private lenders
•Venture capitalists
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The Firm and Its Stakeholders
Stakeholders
Capital Market Stakeholders
Product Market Stakeholders
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Primary customers
Suppliers
Host communities
Unions
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The Firm and Its Stakeholders
Stakeholders
Capital Market Stakeholders
Product Market Stakeholders
Organizational Stakeholders
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Employees
Managers
Nonmanagers
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Values
Johnson & Johnson’s credo
sets its responsibilities to:
1. J&J product users.
2. J&J employees.
3. Communities in which J&J
employees live and work.
4. J&J stockholders.
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Source: Courtesy of Johnson & Johnson.
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Johnson & Johnson Credo*
 First Responsibility Is to Those Who Use J&J Products
 Next Come Its Employees
 Next, the Communities in Which the Employees Live and
Work
 Its Final Responsibility Is
to Its Stockholders
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Levels of Strategy
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•Functional-Level Strategy
 Manufacturing
 Marketing
 Materials Management
 Research and Development
 Human Resources
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• Business-Level
Strategy
 Cost Leadership
 Differentiation
 Market Niche Focus
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•
Global Strategies
 Multidomestic
 International
 Global
 Transnational
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• Corporate-Level
Strategy
 Vertical Integration
 Diversification
 Strategic Alliances
 Acquisitions
 New Ventures
 Business Portfolio
Restructuring
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