Business Policy

Strategy Formulation Topic 1: The Concept of Strategy and the Strategic Management Process

Lecture Plan
What is a strategy? The strategic management process Why strategic management is an ongoing process Who performs the tasks of SM? Benefits of a strategic approach

What is a strategy?
determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals
Chandler

a commitment to undertake one set of actions rather than another

Oster

What is a Strategy? (2)

...the game plan management has for positioning the company... entails choice among alternatives and signals organisational commitment to specific markets, competitive approaches, and ways of operating.
Thomson and Strickland

Corporate Business Function

The strategy pyramid

Influence

Operating

Uniting the strategy-making effort through vertical and horizontal linkages. Co-ordination through mutually reinforcing vision, objectives & strategies.

Different Levels of Strategy

Corporate - what business? Business - how to compete in each business Functional - in support of business level

The Strategic Management Process

Analyze Environment Identify opps / threats

Identify current mission, objectives & strategies

SWOT ANALYSIS

Formulate Strategies

Analyze Resources

Identify strengths & weaknesses

Implement Strategies

Evaluate Results
Management, Robbins, S. & Coultar, M. 1996p. 259

Strategy Making - Process or Event?

Strategy making is an ongoing process Boundaries between tasks:conceptual not real Managers have many other responsibilities Crafting/ implementing happens erratically

Intended and Adaptive Strategy

strategy is a combination of planned actions and on-the-spot adaptive reactions to freshly developing industry and competitive events. Respond to external/internal environment Emergent Strategy

Who Performs the five tasks?

CEO and other managers Strategic planners Board of directors

The Three Strategy Making Tasks

Develop a strategic vision/ business mission Set objectives Craft a strategy

Chesire Puss she (Alice) began ... Would you please tell me which way I ought to go from here That depends on where you want to get to, said the cat. Lewis Carroll

If you dont know where youre going, any old road will take you there. Anonymous

Mission

Defines the current boundaries Defines the business position -Who are we? - What do we do?

Present

What Business are you in: Coca Cola

soft drinks? Competition is Pepsi, Finches beverages? Competition is tea, coffee, softdrinks thirst -quenching? Competition is water & all liquids!

Broad / Narrow Business Definition

Broad Beverages Childrens entertainment Furniture Travel Narrow Fizzy drinks Toys for toddlers Waterbeds River cruises in Egypt

Objectives
Strategic vs. Financial? Long range vs. short range?

Challenging but achievable Measurable

Strategic vs. financial objectives?

Strategic
focus is on competitors
eg. becoming the top company in the industry

Financial
focus is on financial performance
eg. acceptable profit margin/ ROI

Both are neccessary

company must survive in both short and long term

Long vs. Short term?

Long term forces
early action long term implications considered

Short term encourages

speedy progress

Challenging but Achievable

objectives must be realistic but should stretch funds/ resources must be available to execute the strategy

Measurable
Objectives must be measureable
eg. growth in market share of 5%

Deadlines must be set

eg. by December next You cannot manage what you cannot measure

Objectives needed at all levels

Parts supporting the whole

Top-down objective-setting - cohesion - leadership

Approaches to performing the strategy making tasks

Master strategist: manager is chief architect Delegate to others Collaborative approach Champion approach

External
Society political regulatory Industry Opportunity Attractive- threat ness

Factors that shape strategy

Companys strategic situation

Evaluation Choice

Craft a Strategy

Strengths weakness

Manager values / ambitions

Culture

Internal

Societal, Political, Regulatory Conditions

Limit the strategic actions that a company can or should take May cause company to change strategy
anti-smoking lobby (direct mkg/advertising) lead-free petrol (eg Pura) recycling

Industry Attractiveness
Strategy must be matched to industry and competitive conditions eg.
technology shift change in cost structure of industry

Market Opportunities and Threats

Be open to opportunities Aim at capturing best growth opportunities Defend against threats to well-being and future performance

Organisational Strengths and Weaknesses

Strategy must be well-matched to the companys strengths
strategy should be grounded in what company is good at doing perilous to depend on what its not good at

Managers Values, Beliefs and Ambitions

Management play a pivotal role Strong leadership builds commitment Management communication - buy-in

Strategy formulation: deciding what to do

what you might do: opportunity

what you can do:

what youd like to do: what you ought to do:

resources
values/ ambitions ethics

Tests for a good strategy

Goodness of fit test
matches well the companys situation
internal external

Competitive advantage test

leads to sustainable competitive advantage

Performance test
leads to superior performance
profitability long term business/ market position strength

Benefits of a Strategic Approach

Direction Adaptable / in-tune with environment Basis for budget/resource allocation Unifies decisions across organisation Encourages pro-active management Requires strategic thinking rather than gutfeel/drift