1.an introduction to strategic management
DESCRIPTION
A quick sneak pick into the strategising Business idealsTRANSCRIPT
Competing for survival
Every Morning in Africa,
a Bush buck wakes up
knowing it must run faster than
the fastest Lion, or it will be killed.
Competing for survival
Every morning, a lion wakes up
knowing it must outrun the
slowest Bush buck,
or it will starve to death.
It doesn't matter whether you are a bush buck or a lion, when the sun comes up, you better be running
Strategic management-Introduction Why some organisations succeed while others fail? Why success may turn into failure? How a failing organisation can regain success? There are several determinants of the company’s
performance Industry context -Entertainment Industry V Education National context
the world’s most successful automobile and consumer electronics companies are based in Japan
Most successful pharmaceuticals companies are based in US and Switzerland
Most financial services are based in US & Britain Company context (itself)
Resources Capabilities Strategies The company context is by far the strongest determinant of
its success or failure
So what is Strategy?Strategy is about competing and winning. It’s about success or failure. It’s about planning and winning business wars. It is about taking the customer’s dollar before the competitor takes it. According to Sun Tzu, a Chinese philosopher warrior in his book Art of war he says
“when your strategy is deep and far reaching, then what you gain by your calculations is much, so you can win before you even fight. When your strategic thinking is shallow and nearsighted, then what you gain by your calculations is little, so you lose before you do battle. Much strategy prevails over little strategy, so those with no strategy cannot but be defeated. Therefore it is said that victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win”.
Strategy simplified According to Jack Welch “Strategy is a living,
breathing and a totally dynamic game. An appropriate course of action that you frequently revisit and redefine according to shifting market conditions”
Strategy means making clear cut choices about how to compete
Companies’ survival depends on finding a strategic position where no one can beat them
There are three steps that describe how strategy works
First come up with a big aha (a cry of surprise, satisfaction or amused discovery) for your business-a smart, realistic, relatively fast way to gain competitive advantage.
Second, put the right people in the right jobs to drive the big aha forward.
Third, relentlessly seek out the best practices to achieve your big aha, whether inside or out, adapt them, and continually improve them.
Figuring out a big aha to gain sustainable competitive advantage involves answering
the five sets of questions;
What the playing field looks like now?
Who are the competitors in this business, large & small, new & old?
Who has what share globally and in each market? Where do we fit?
What are the characteristics of this business? Is it commodity or high value or somewhere in between? Is it long cycle or short? What are the drivers of profitability?
What are the strengths and weaknesses of each competitor? How good are their products? How much does each one spend on R&D? How big is each sales force? How performance-driven is each culture?
Who are the business’s main customer and how do they buy?
What the competition has been up to?
What has competitor done in the past one year to change the playing field
Has anyone introduced game-changing products, new technologies or a new distribution channel?
Are there any new entrants and what have they been up to in the past year? (stealing key sales people, introduced new products, mergers)
Dig deeper into each competitor behaviour Be granular-know what each competitor eats for
breakfast
What have you been up to? What have you done in the past year to change the
competitive playing field? Have you bought a company, introduced a new product,
stolen a competitor’s key sales person or licensed a new technology from start up?
Have you lost any competitive advantages that you once had- a great sales person, a special product, a proprietary technology?
This set of questions clearly hits you between the eyes if you are being outflanked
When compared with the second set of questions the company can tell whether it is leading the market or chasing it.
What is around the corner? What scares you most in the year ahead-what
one or two things could a competitor do to nail you?
What new products and technologies could your competitors launch that might change the game?
What Merger and Acquisition deals would knock you off your feet?
Never underestimate your competitors or assume you have all the technical answers
Getting the right strategy means you have to assume your competitors are damn good or at the very least as good as you are, and they are moving just as fast as you are or faster
What is your winning move?
What can you do to change the playing field- Is it an acquisition, anew product, globalisation?
What can you do to make customers stick to you more than ever before and more than any one else?
This is a moment of leap from analysis to action By the time you finish answering the five sets of
questions, the effectiveness of your strategy should be pretty clear
Your big aha is winning or it needs change Even if you did not have any strategy at all before,
this process should help you get one
The right people & Best practicesB) The right people Any strategy, no matter how smart is dead on arrival
unless a company brings it to life with the right people
People are the most important resource of the organisation because they provide talent, creativity and drive.
C) Best practices Companies that win do two things; they imitate and
improve This involves finding best practices, adapting them
and continually improving them When you do that right it is nothing short of
innovation Along with getting the right people in the right place
best practices are all part of implementing the hell out of your big aha.
A HISTORICAL PERSPECTIVE OF STRATEGIC MANAGEMENT
The concept of strategy originated from the study of success in war and has been in practice in military science for a long time. Sun Tzu saw the aim of strategy as defeating the enemy by fighting as few battles as possible. Strategic management was adopted into business and it began as corporate planning which concentrated on using forecasting techniques to set realistic objectives and then evaluate strategies to achieve them. Business strategy is about winning wars and occupying territories in terms of market share.
Strategic Management definitions
Generally strategic management is a set of decisions and actions that are intended to formulate a strategy that will enable the organisation achieve its objectives.
It involves - Setting organisational goals and objectives - Designing strategies to achieve those goals - And drawing action plans for implementing
those strategies. According to Jauch and Glueck (1988) Strategic
management is a stream of decisions and actions which leads to the development of an effective strategy to help achieve corporate objectives
Definitions contd..
Thompson & Strickland(1987) define strategic management as a process where by managers establish an organisation’s long term direction, set specific performance objectives, develop strategies to achieve these objectives in light of the relevant internal and external circumstances and undertake to execute the chosen action plans.
Chandler (1987) defines strategic management as the 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.
Strategic Management Features
From the above definitions strategic management as a subject of study and management practice got five major characteristics;
Long-term orientation-futuristic Top management view-big picture An integrated and comprehensive approach A focus on corporate or business strategy as the
central theme and the core responsibility of top management
The recognition of corporate/business strategy as the main means of achieving the competitive superiority of a firm.
Importance of Strategic Management
Why strategic Management? Why practice strategic Management?
(i) It stimulates thinking about the Future
In a competitive free environment a firm will succeed only if it takes a proactive stance towards change.
Strategic management allows top executives to anticipate changes and provide control and direction of the organisation
Business environment is increasingly getting volatile and managers should not just react to change but should manage it or even cause it to happen
Importance of Smgt Contd..
(ii) Exploitation of opportunities Prudent managers do not wait for
complete certainty Opportunities will always go to a
prepared man Because strategic management
emphasizes anticipating change a strategic manager is always prepared.
Importance of Smgt contd..
(iii) Gives a sense of direction People tend to perform better if they know what is
expected of them and where the enterprise is going
(iv) Encourages long term planning Decisions are based on long range forecasts not
momentous reactions e.g. Fire brigade stunts/fire fighting can not work in
competitive business environment.
(v) Helps the organisation to get competitive edge A well thought out strategy will enable the enterprise
to be a head of the pack
Importance of Smgt contd.. (vi) Helps in positioning the company in the eyes of
the customers Market penetration vs. skimming the cream MTN – Celtel Scenario
(vii) Strategy formulation activities enhance the firm’s ability to prevent problems.
Managers who encourage subordinates attention to planning are aided in their monitoring and forecasting responsibilities by subordinates who are aware of the needs of strategic planning.
(viii) The involvement of employees in strategy formulation improves their understanding of the productivity-reward relationship in every strategic plan and thus heightens their motivation.
Importance of Smgt contd…
(ix) Group based strategic decisions are likely to be drawn from the best available alternatives. The strategic management process results in better decisions because group interaction generates a greater variety of strategies and fore casts based on the specialised perspectives of group members improve the screening of options.Gaps and overlaps in activities among individuals and groups are reduced as participation in strategy formulation clarifies differences in roles
(x) Resistance to change is reduced Employees’ greater awareness of the parameters
that limit the available strategic options makes them more likely to accept strategic decisions and implement them
STRATEGIC MANAGEMENT FRAME WORK/PROCESS
The strategic management process is made up of five major steps or phases,
Defining the Enterprise’s business Setting strategic objectives and
performance targets Formulating a strategy to achieve the
strategic objectives and targets Implementing the selected strategy Evaluation & control
STRATEGIC MANAGEMENT FRAME WORK
Recycle to phases 1, 2,3or4 as needed
Setting strategic objectives and performance targets
Formulating strategy to achieve objectives
Implementing the selected strategy
Evaluating performance and control
Defining the business of the enterprise
Redefine Revise objectives Reformulate strategy as needed
Rework implementation plans and tactics
Defining the business of the enterprise
Defining the business involves answering the following questions
What is our business? What will it be? What should it be? Why are we in business? To answer the question “what is our business?” Derek F.
Abell has suggested that a company should define its businesses in terms of 3 dimensions. • What is being satisfied (what customers needs)• Who is being satisfied (what customers groups) • How are the customers needs being satisfied (by
what skills or distinctive competencies)?
Abell’s framework for defining the business
Who is satisfied? (Customer groups)
Definition of the business
How are the customers’ needs being satisfied (Distinctive competences)
What is being satisfied?(Customer needs)
Abell’s framework for defining the business
Abell’s approach stresses the need for a consumer oriented rather than a product oriented business definition which focuses just on products sold and the markets served. Abell maintains that such an approach obscures the company’s function, which is to satisfy consumer needs
The question what is our business? Can also be answered by defining the mission of the enterprise and establishing the scope of the business activities the firm pursues.
Identifying different ways, in which customers can be served, can safeguard companies from being caught unawares by major shifts in demand.
Indeed by helping anticipate demand shifts, Abell’s framework can assist companies in capitalizing on the changes in their environment. This will answer the question of “what will our business be”?
Abell’s framework for defining the business contd..
Firms that do not define their business or do it incorrectly or those that fail to see what their business will become are headed for decline.
Theodore Levitt described the fall of once might US rail roads in terms of their failure to define their business correctly
“The rail roads did not stop growing because the need for passenger and freight transportation declined. That grew. The railway roads are in trouble today not because the need was filled by others (cars, trucks, airplanes even telephones) but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry wrong was because they were railway oriented instead of being transport oriented; they were product oriented instead of customer oriented”
Defining the business contd..
In contrast IBM foresaw correctly what its business would be and shifted from manufacture of typewriters and mechanical tabulating equipment using punch-card technology. By defining its business as providing a means for information processing & storage. It’s this definition that allowed IBM to subsequently move into computers soft-ware systems, office systems and printers.
However the current IBM’s problems arose because in the 1980s the company lost sight of the fact that increasingly consumer needs for information processing and storage were being satisfied by low cost personal computers and not the mainframe computers produced by its core business.
The Question, what should our business be? Can also be answered using Abell’s framework e.g. IBM decided that its business should be computers, word processors and office systems?
The question; why are we in business? requires establishing objectives to be accomplished by the firm.
Setting strategic objectives
These are specific performance targets that an organization sets itself to achieve with in a specified period of time.
Objectives should be consistent with the vision and mission of the organization
Objectives must be reviewed and if necessary modified to carter for changes in the environment or organizational capabilities
Companies have a multiple of objectives; long-term, medium term and short-term, corporate, business and functional, primary and secondary objectives
These objectives may sometimes conflict and therefore requires a lot of clarity
Objectives guide the enterprise as to where it is going and where it wants to be
They give direction What results to accomplish by when
Formulating a strategy
This tries to answer the question “how do we get there?
Plan to achieve the mission and objectives
Strategy guides the enterprise as to how it will achieve or accomplish the targeted objectives
It is a means of achieving the objectives
Strategy formulation is normally proceeded by environmental audit
Strategy implementation
Answers the question ‘how do we ensure arrival’?
Involves executing or putting the selected strategy into action
Involves looking at tasks and tactics, policies programs, budgets and procedures
Operational plans that details; who is to do what and when?
Evaluation and control
Strategic management is an ongoing process that must be reviewed and where necessary modified to ensure that strategies achieve the intended objectives
Evaluation involves looking back to see how well the chosen strategy is working and whether its implementation is going on smoothly
Finding out what went wrong or right Looking for deviations from the planned and ask
why? Find out whether the reward systems are
aligned with performance Control involves taking corrective measures to
deviations
Key Questions in Strategic Mgt.
There are a couple questions that need to be answered in strategic management. Among them the following are the key;
What biz are we in? Where are we now as a business? Where are we going as a business? How do we get there? How do we ensure arrival? Have we achieved the set targets as
planned?
Aligning Strategic Management Frame work with the Key Questions in Strategic
Management. What biz are we in? Answered by; defining
the business of the enterprise Needs satisfaction Who are our customers? Who will be our customers? What, why, how and when do they buy? How do we serve them? What is the core benefit to the customers e.g.
cosmetics manufacturers are in the business of enhancing beauty
Mission and the corporate philosophy of the organization
Where are we now as a business?- strategic assessment
Macro economic analysis PEST analysis Industry life cycle analysis Key factors for success analysis Porters Five Forces analysis Competitor analysis
Internal analysis Resources, capabilities and competencies Competitive advantage Value chain analysis Gap analysis Portfolio analysis
Where are we going as a business? Answered by Setting strategic objectives and
performance targets
The objectives should be consistent with the vision, mission, purpose, philosophy and core values of the organization.
Strategic objectives can be classified as long term,medium,shortterm, corporate, strategic business unit, functional,primary and secondary objectives
Strategic objectives should be SMARTCC-specific, measurable, achievable, and realistic and time bound. They should also be challenging enough and consistent with the mission, vision, and philosophy of the organization.
How do we get there?- Strategy formulation
Functional level strategies Business level strategies Corporate level strategies Global strategies
How do we ensure arrival? Answered by the implementation of the selected
strategy Tasks and tactics, policies budgets and
procedures Who is to what and when? Mckinsey’s7S frame work;-structure,
strategy, systems, skills, style staff and shared values
Change management
Have we achieved the set targets as planned? Answered by carrying out
Evaluation and Control
Look back and analyze the different stages of the strategic management process
Find out what went wrong or right Look for the deviations from the planned
and ask why? Look at reward system and assess
whether they are performance-driven.
DREAM BIG
"The world is full of willing people, some willing to work, the rest willing to let them."
Robert Frost
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