© ram mudambi, temple university, 20061-1 temple university ba 951 policy formulation and...
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© Ram Mudambi, Temple University, 2006 1-1
Temple UniversityTemple University BA 951BA 951
Policy Formulation and Policy Formulation and AdministrationAdministration
Ram MudambiRam MudambiTemple University (USA)Temple University (USA)
andand University of Reading (UK)University of Reading (UK)
© Ram Mudambi, Temple University, 2006
Lecture 1Lecture 1
What is Strategic Management?What is Strategic Management?
BA 950BA 950Policy Formulation and Policy Formulation and
AdministrationAdministration
© Ram Mudambi, Temple University, 2006 1-3
OverviewOverview
What is strategy?What is strategy? An plan of action a company takes to attain superior An plan of action a company takes to attain superior
performance.performance.
Why do some firms succeed while others fail?Why do some firms succeed while others fail? A central objective of strategic management is to A central objective of strategic management is to
learn why this happens.learn why this happens.
What is the strategic management process?What is the strategic management process? The process by which managers choose a set of The process by which managers choose a set of
strategies for the enterprise to pursue its vision.strategies for the enterprise to pursue its vision.
© Ram Mudambi, Temple University, 2006 1-4
Superior PerformanceSuperior Performance Superior performanceSuperior performance
One company’s profitability relative to that of other companies One company’s profitability relative to that of other companies in the same or similar business or industryin the same or similar business or industry
Maximizing shareholder value is the ultimate goal of profit Maximizing shareholder value is the ultimate goal of profit making companiesmaking companies
ROICROIC ((Profitability) = Profitability) = RReturneturn OOn n IInvestednvested CCapitalapital = Net profit / capital invested = Net profit / capital invested = Net income after tax / (equity + debt to creditors)= Net income after tax / (equity + debt to creditors)
Competitive advantageCompetitive advantage When a company’s profitability is greater than the average of all When a company’s profitability is greater than the average of all
other companies in the same industry & competing for the same other companies in the same industry & competing for the same customerscustomers
Sustained competitive advantageSustained competitive advantage
Profitability
Growth
© Ram Mudambi, Temple University, 2006 1-5
Performance in Nonprofit Performance in Nonprofit EnterprisesEnterprises
Nonprofit entities such as government agencies, Nonprofit entities such as government agencies, universities, and charities:universities, and charities:
Are not in business to make a profitAre not in business to make a profit Should use their resources efficiently and effectivelyShould use their resources efficiently and effectively Set performance goals unique to the organizationSet performance goals unique to the organization Set strategies to achieve goals and compete with other Set strategies to achieve goals and compete with other
nonprofits for scarce resourcesnonprofits for scarce resources
A successful strategy gives potential donors a compelling message as to
why they should contribute.
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Strategy as a planStrategy as a plan Strategy is concerned with ‘draft(ing) the plan of
war...shap(ing) the individual campaigns, and within these, decid(ing) on the individual engagements.’ (Von Clausewitz, On War, 1976)
Strategy is ‘a complete plan: a plan which specifies what choices (the player) will make in every possible situation.’ (Von Neumann and Morgenstern, Games and Economic Behavior, 1944)
‘Strategy is a unified, comprehensive and integrated plan...designed to ensure that the basic objectives of the enterprise are achieved.’ (Glueck, Business Policy and Strategic Management, 1980)
© Ram Mudambi, Temple University, 2006 1-7
Two factors underlying all Two factors underlying all outcomesoutcomes
OutcomeStrategy
Chance
Strategy
ChanceOutcome
Planned
Unplanned
Planned
Unplanned
Good strategy Bad strategy
© Ram Mudambi, Temple University, 2006 1-8
Defining the Mission and Setting Top-Level GoalsDefining the Mission and Setting Top-Level Goals
External Analysis of Opportunities and ThreatsExternal Analysis of Opportunities and Threats
Internal Analysis of Strengths and WeaknessesInternal Analysis of Strengths and Weaknesses
Selection of Appropriate StrategiesSelection of Appropriate Strategies
Implementation of Chosen StrategiesImplementation of Chosen Strategies
Strategic PlanningStrategic Planning
Rational planning by top management?Rational planning by top management?
Basic Strategic Planning ModelBasic Strategic Planning Model
© Ram Mudambi, Temple University, 2006 1-9
The Main The Main Components of Components of the Strategic the Strategic Planning Planning ProcessProcess
SYLLABUSSYLLABUS
TOPIC 1
TOPIC 2
TOPIC 5
TOPIC 6
TOPIC 7
TOPIC 3
The Strategic planning process
External Analysis
Internal Analysis
Competitive Advantage
Contextual Analysis of
Strategy
Corporate Strategy
Governance &Ethics
Strategy Implementation
TOPIC 8
TOPIC 4
© Ram Mudambi, Temple University, 2006 1-10
The Main The Main Components of Components of the Strategic the Strategic Planning Planning ProcessProcess
TEXTTEXT
© Ram Mudambi, Temple University, 2006 1-11
Mission and GoalsMission and Goals
MissionMission Sets out why the organization Sets out why the organization
exists and what it should be doing.exists and what it should be doing.
Major goals - visionMajor goals - vision Specify what the organization hopesSpecify what the organization hopes
to fulfill in the medium to long term.to fulfill in the medium to long term.
Secondary goalsSecondary goals Are objectives to be attained that lead to superior Are objectives to be attained that lead to superior
performance.performance.
© Ram Mudambi, Temple University, 2006 1-12
Vision vs. MissionVision vs. Mission
A statement of purpose (A statement of purpose (strategic intentstrategic intent) ) committing the organization to ambitious committing the organization to ambitious overarching (overarching (stretchstretch) goals.) goals.
Provides a sense of direction and purpose.Provides a sense of direction and purpose. Drives strategic decision making Drives strategic decision making
and resource allocations.and resource allocations. Forces the seeking of Forces the seeking of
significant performancesignificant performance improvements to improvements to
attain goals.attain goals.
© Ram Mudambi, Temple University, 2006 1-13
Customer Orientation and Business Customer Orientation and Business DefinitionDefinition
Abell’s FrameworkAbell’s Frameworkfor Defining thefor Defining theBusinessBusinessConsumer-oriented Consumer-oriented
versus versus Product-oriented Product-oriented business definitionbusiness definition
Source: Derek F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, N.J.: Prentice-Hall, 1980), p. 17.
© Ram Mudambi, Temple University, 2006 1-14
ValuesValues
Johnson & Johnson’s credoJohnson & Johnson’s credosets its responsibilities to:sets its responsibilities to:
1.1. J&J product users.J&J product users.2.2. J&J employees.J&J employees.3.3. Communities in which J&JCommunities in which J&J
employees live and work.employees live and work.4.4. J&J stockholders.J&J stockholders.
Source: Courtesy of Johnson & Johnson.
© Ram Mudambi, Temple University, 2006 1-15
External AnalysisExternal Analysis
Identify Identify strategic opportunities and threatsstrategic opportunities and threats in in the operating environment.the operating environment.
MacroenvironmentMacroenvironment NationalNational
Immediate (Industry)Immediate (Industry)
© Ram Mudambi, Temple University, 2006 1-16
Internal AnalysisInternal Analysis
Identify strengthsIdentify strengths Quality and quantity of resources availableQuality and quantity of resources available Distinctive competenciesDistinctive competencies
Identify weaknessesIdentify weaknesses Inadequate resourcesInadequate resources Managerial and Managerial and
organizational deficienciesorganizational deficiencies
© Ram Mudambi, Temple University, 2006 1-17
Strengths and WeaknessesStrengths and Weaknesses
Opportunities and ThreatsOpportunities and Threats(SWOT Analysis)(SWOT Analysis)
Strategic ChoiceStrategic ChoiceFunctionalFunctionalBusinessBusiness
GlobalGlobalCorporateCorporate
SWOT and Strategic ChoiceSWOT and Strategic Choice
© Ram Mudambi, Temple University, 2006 1-18
A business model encompasses how the company will:
Company’s Business ModelCompany’s Business Model
Management’s model of howhow strategy will allow the company to gain competitive advantage
and achieve superior profitability
• Select its customers• Define and differentiate
its product offerings• Create value for its
customers• Acquire and keep
customers• Produce goods or
services
• Deliver those goods and services to the market
• Organize activities within the company
• Configure its resources• Achieve and sustain a
high level of profitability• Grow the business over
time
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Levels of Strategic ManagementLevels of Strategic Management
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Functional-Level StrategiesFunctional-Level Strategies
Focus is on improving the effectiveness of Focus is on improving the effectiveness of operations within a company.operations within a company.
ProductionProduction OperationsOperations MarketingMarketing Research and developmentResearch and development Human resourcesHuman resources
© Ram Mudambi, Temple University, 2006 1-21
Business-Level StrategiesBusiness-Level Strategies
Cost leadershipCost leadership Attaining, then using the lowest total cost basis as a Attaining, then using the lowest total cost basis as a
competitive advantage.competitive advantage.
DifferentiationDifferentiation Using product features or services to distinguish the Using product features or services to distinguish the
firm’s offerings from its competitors.firm’s offerings from its competitors.
Market niche focusMarket niche focus Concentrating competitively on Concentrating competitively on
a specific market segment.a specific market segment.
© Ram Mudambi, Temple University, 2006 1-22
Corporate-Level StrategiesCorporate-Level Strategies
Vertical integrationVertical integrationOutsourcingOutsourcingDiversificationDiversificationStrategic alliancesStrategic alliancesAcquisitionsAcquisitionsNew venturesNew venturesBusiness portfolio Business portfolio restructuringrestructuring
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Strategy ImplementationStrategy Implementation
Designing organizational Designing organizational structurestructure
Designing Designing controlcontrol systems systems Market and output controlsMarket and output controls Bureaucratic controlsBureaucratic controls Control through organizational cultureControl through organizational culture Rewards and incentivesRewards and incentives
FitFit - Matching strategy, structure, - Matching strategy, structure, and controlsand controls
Congruence among strategy, Congruence among strategy, structure, and controlsstructure, and controls
StructureStructure
StrategyStrategy
ControlsControls
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Strategic LeadershipStrategic Leadership
Vision, eloquence, and consistencyVision, eloquence, and consistency
CommitmentCommitment
Being well informedBeing well informed
Willingness to delegate and empowerWillingness to delegate and empower
The astute use of powerThe astute use of power
Emotional intelligenceEmotional intelligence Self-awarenessSelf-awareness Self-regulationSelf-regulation MotivationMotivation EmpathyEmpathy Social skillsSocial skills
Good leaders of the strategy-making process have a number of key attributes:
© Ram Mudambi, Temple University, 2006 1-25
Strategy as an Emergent Strategy as an Emergent ProcessProcess• Strategy making in an unpredictable worldStrategy making in an unpredictable world
Creates the necessity for flexible strategic approaches.Creates the necessity for flexible strategic approaches.
• Strategy making by lower-level managersStrategy making by lower-level managers Strategy evolves through autonomous action.Strategy evolves through autonomous action.
• Serendipity and strategySerendipity and strategy Accidental discoveries and happenstances can have dramatic Accidental discoveries and happenstances can have dramatic
effects on strategic direction.effects on strategic direction.
• Intended and emergent strategiesIntended and emergent strategies Realized strategies are combinations of intended and Realized strategies are combinations of intended and
emergent strategies. emergent strategies.
© Ram Mudambi, Temple University, 2006 1-26
Intended and Emergent Intended and Emergent StrategiesStrategies
Source: Reprinted from “Strategy Formation in an Adhocracy,” by Henry Mintzberg and Alexandra McGugh, published in Administrative Science Quarterly, Vol. 30, No. 2, June 1985, by permission of Administrative Science Quarterly.
© Ram Mudambi, Temple University, 2006 1-27
The Strategic Management The Strategic Management Process for Intended and Process for Intended and Emergent StrategiesEmergent Strategies
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Strategic Planning in PracticeStrategic Planning in Practice
Planning under uncertaintyPlanning under uncertainty Scenario planning for dynamic environmental changeScenario planning for dynamic environmental change
Ivory tower planningIvory tower planning Lack of contact with operational realitiesLack of contact with operational realities The importance of involving operating managersThe importance of involving operating managers Procedural justice in the decision-making processProcedural justice in the decision-making process
Engagement, explanation, and expectationsEngagement, explanation, and expectations
Planning for the present: Strategic IntentPlanning for the present: Strategic Intent Recognition of the static nature of the strategic fit modelRecognition of the static nature of the strategic fit model Strategic intent in focusing the organization on winning by Strategic intent in focusing the organization on winning by
achieving stretch goalsachieving stretch goals
© Ram Mudambi, Temple University, 2006 1-29
Problems in Strategic Decision Problems in Strategic Decision MakingMaking1. Cognitive biases1. Cognitive biases systematically influence systematically influence the rationality of decision makers.the rationality of decision makers.
Mintzberg’s example of the Vietnam war
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Problems in Strategic Decision Problems in Strategic Decision MakingMaking2. Pitfalls of groupthink2. Pitfalls of groupthink
Failing to question underlying assumptions.Failing to question underlying assumptions. Coalescing around a single person or policy.Coalescing around a single person or policy. Filtering out conflicting information.Filtering out conflicting information. Developing after-the-fact rationalizations.Developing after-the-fact rationalizations. Having an emotional (non-objective) Having an emotional (non-objective)
commitment to an action.commitment to an action.
© Ram Mudambi, Temple University, 2006 1-31
Techniques for Improving Decision Techniques for Improving Decision MakingMakingTwo decision-Two decision-making processesmaking processesthat counteractthat counteractcognitive biases cognitive biases and groupthink.and groupthink.
© Ram Mudambi, Temple University, 2006 1-32
SummarySummary
• What is strategy and strategic management? What is strategy and strategic management?
• Overview of the courseOverview of the course
• Strategic management in the firmStrategic management in the firm• Intended and emergent strategiesIntended and emergent strategies• Problems – sources and managementProblems – sources and management