THE PROCESS OF STRATEGIC MANAGEMENT

1. Different forms of strategy

2. Incrementalist perspective

3. Rational planning perspective

4. Organisational learning perspective

DIFFERENT FORMS OF STRATEGY

Elements of Saturn’s intended & realised strategy
Elements of intended Saturn
strategy
Economy vehicle ($6000).
Fuel efficient subcompact,
G.M.s product-line extension
Heavy automation, emphasis
on robots
Scale: $5 billion; annual
output 500,000 cars per year
Developments requiring
strategic response
Concern for fuel efficiency
diminishes after 1970s energy
crisis; G.M. loses 11% m.s. in
US; target shifts to more
sporty cars
G.M. understood limitation of
automation, importance of
‘human factors’ & workforce
involvement
More global competitors enter
US market; G.M. loses m.s.;
develops concern about sales
poten-tial of new Saturn line
Resulting elements of realized
Saturn strategy
Sporty compact with $8000 to
12000; ‘look & feel of an
import’
Balanced mix of advanced &
traditional manufacturing
technologies; greater emphasis
on employee training
$3 billion investment in a
plant with annual output of
240,000 cars
STRATEGIC MANAGEMENT PERSPECTIVES

Rational Planning:

• Attempts to move to new strategic position & try to maintain

• Intellectual analysis & formulation, environment predictable, organization

controllable

• Development of many useful planning tools

• Plans may be quickly outdated by unexpected developments, often in

implementation

Organizational Learning:

• New strategic positions thru’ continuous adjustments

• Mistakes possible, may lead to new ways

• “Legitimizes mistakes” encouraging risk taking

• New ways – stressful for som

STRATEGIC MANAGEMENT PERSPECTIVES Contd

Incrementalism:

• Organizational drift, beyond control

• Unable to forecast, continuous adjustment

• Encourages flexibility, concern of implementation

• Doesn’t encourage pro-activity

INCREMENTALIST PERSPECTIVE

• Future is unknown & unknowable

• External forces are too powerful to be controlled by organisations or their managers

• Managers cannot enforce adherence to their plans

RATIONAL PLANNING PERSPECTIVE

• Hierarchy of strategic intent

• Strategic programming

Hierarchy of Strategic Intent

By strategic intent we refer to the purpose(s) of the organisation & the ends it pursues

These parameters as a hierarchy of strategic intent:

1. A broad vision of what the organisation should be

2. The organisation’s mission to

3. Specific goals that are operationalised as

4. Various strategic objectives to be reached by acting according to specific

5. Plans
THE ELEMENTS OF THIS HIERARCHY SET FORTH THE IDEALS & IDEAS THAT
SERVE TO UNIFY THE ENERGY & FORCES SCAT-TERED THROUGHOUT AN
ORGANISATION.

THEY ARE BEGINNING POINTS FOR ANY FORMAL PLANNING PROCESS, BUT
THEY ALSO PROVIDE THE SENSE OF DIRECTION NECESSARY TO ASSURE THE
INCREMENTAL BEHAVIOUR CULMINATES IN

OVERALL PROGRESS

Vision
Vision refers to the category of intentions that are broad, all inclusive, and forward-thinking:

• Describe aspirations for the future specifying means that will be used to to achieved
those desired ends:

- foresight

- shared vision

• Most effective visions are those that inspire, usually asking employees for the best,
the most, or the greatest

STEVE JOB’S OF BUILDING AN “INSANELY GREAT” COMPUTER INSPIRED

THOSE WORKING ON THE INVENTION OF THE FIRST MACINTOSH TO REACH
LEVELS OF PERSONAL ACHIEVEMENT MOST HAD NEVER BELIEVED POSSIBLE

Mission
A VISION BECOMES MORE TANGIBLE IN THE FORM
OF A MISSION STATEMENT.
SUCH A STATEMENT CAN VERBALISE THE BELIEFS
& DIRECTIONS IN WHICH A VISIONARY MQANGER
WANTS TO
LEAD AN ORGANISATION
 Goals
JUST AS MISSION STATEMENTS TRY TO MAKE
VISION MORE SPECIFIC, GOALS ARE ATTEMPTS TO IMPROVE
AN ORGANISATION’S PERFORMANCE BY MAKING MISSION
STATEMENTS MORE CONCRETE:
The strategic goals identified by most organisations share
several features:
• They address both financial & non-financial issues
• They can be reached, with a stretch
• They cut across functional areas
Examples of strategic goals
Financial goals:

• Boeing:

“Profitability as measured against our ability to achieve & then maintain a 20% average
annual return on stockholder’s equity”

Non-financial goals:

• General Electric:

“We will run only business that are that are number two in their global global
markets”

Objectives
OBJECTIVES REPRESENT THE OPERATIONAL DEFINITIONS OF GOALS, OR
EXPLANATIONS OF THE CONCEPTS THAT ARE CONCRETE ENOUGH TO
SUGGEST SPECIFICATIONS;

• Goals describe in fairly general terms what the organisation hopes to accomplish, but

• Objectives detail, in more precise terms, what needs to be accomplished in order to

reach the goals

Most helpful objectives have…

• Can be measured

• Incorporate a time dimension

• Reduce conflict

Plans
TYPICALLY DESCRIBE SPECIFIC TACTICS, ASSIGN RESPONSIBILITIES,
IDENTIFY HOW RESOURCES WILL BE ALLOCATED, SCHEDULE ACTIVITIES &
EFFORTS,

AND SPECIFY TARGETS

 THE CONTENT OF STRATEGY

1. Meeting the needs of Multiple Stakeholders

2. Fiscal responsibility as a pre-requisite for addressing social responsibilities

3. Value-based management & creating economic value

4. Competitive advantage: focal point of strategy:

* Differentiation

* Cost leadership

* Quick response

5. Overview of how companies achieve competitive advantage: the architecture of

strategy

MEETING NEEDS OF MULTIPLE STAKEHOLDERS

Managers responsible to a diverse set of stake-holders & have responsibilities to all of them:

• Owners/stockholders

• Trade associations

• Customers

• Public at large

• Employees

• Governments

• Suppliers

• Local community
 Purpose of a business is to provide value for a broad range of stakeholders

Stakeholder group Examples of

value provided
Stockholders Stock prices appreciation &
dividends
Customers Products & services
Employees Employment, wages, personal
growth opportunities
Local community Jobs, economic development,
civic involvement
Society at large Economic health & security,
environmental protection
Trade association Political strength, operating funds

ALTHOUGH AN ORGANISATION CLEARLY HAS OBLIGATIONS TO A BROAD

RANGE
OF STAKEHOLDERS, MEETING FINANCIAL OBLIGATIONS IS A PREREQUISITE
FOR ADDRESSING NONFINANCIAL GOALS IN
A SERIOUS, SUSTAINED FASHION

FISCAL RESPONSIBILITY AS A PRE-REQUISITE FOR ADDRESSING SOCIAL

ISSUES
• “Unless we remain a profitable firm, we will not have the option of pursuing our
environmental goals. As a for-profit business, we must make a profit before we can
devote our attention to other concerns, no matter how important those other concerns
may be”
• Profits provide cash flow that organisations usually need to address non-financial
goals
 • We need not think of a firm’s fulfilling its fiscal & social responsibilities in “either-or
terms”:
- meeting stakeholders’ needs does not prevent an organisation from meeting the needs
of other stakeholders

RESEARCH ON THE DETAILS OF SIXTY-ONE MISSION STATEMENTS FROM

FORTUNE 500 FIRMS REVEALS THAT 90% MENTION FINANCIAL
SOUNDNESS, PROFITABILITY, OR GROWTH OF THE FIRM.
PROBABLY THE ONLY REASON THE OTHER 10% DID NOT MENTION FINANCIAL
GOALS IS THAT THEIR WRITERS ASSUMED FINANCIAL INTEGRITY TO BE
UNDERSTOOD

VALUE-BASED MANGEMENT & CREATING ECONOMIC VALUE

EVA IS WHAT’S LEFT OVER AFTER A FIRM HAS COVERED ALL ITS FACTORS OF
PRODUCTION, INCLUDING OPERATING AND OVERHEAD EXPENSES,
INTEREST EXPENSES, TAXES, AND
A FAIR RETURNS FOR INVESTORS
Those experienced with the EVA attribute such successes to
the “four Ms”:
1. Measurement
2. Motivation
3. Management system
4. Mindset
OVER THE LONG RUN, THE TOTAL AMOUNT OF VALUE A FIRM CAPTURES FOR ITS
INVESTORS

(IN THE FORM OF EVA) CANNOT EXCEED THE VALUE IT CREATES FOR ITS CUSTOMERS ( IN
THE FORM OF COMPETITIVE ADVANTAGE )

THE PROCESS OF STRATEGIC MANAGEMENT IS COMING TO BE DEFINED, IN FACT,

AS THE MANAGEMENT FOR

COMPETITIVE ADVANTAGE – THAT IS, AS A PROCESS OF IDENTIFYING, DEVELOPING, AND

TAKING ADVANTAGE OF ENCLAVES IN WHICH A TANGIBLE & PRESERVABLE BUSINESS
ADVANTAGE CAN BE ACHIEVED

DIFFERENTIATION

• Product features

• After-sales service

• Desirable image

• Technological innovation

• Reputation
 • Managing consistency

• Status symbol

COST LEADERSHIP

• Economies of scale

• Learning curve effects

QUICK RESPONSE

• Refers to the speed with which a new product, a product improvement, or even a
managerial decision that affects the customer, can be made, rather than a firm’s
relative level of differentiation or low cost

• Adding value to a product consists of any activity that increases the product’s worth
to the customer, such as design, manufacturing, packaging, delivery,…

STRATEGY EVALUATION & SELECTION

STRATEGIC MANAGEMENT

INTRODUCTION & EVALUATION CRITERIA

3 types of evaluation criteria used:

1. Suitability

2. Acceptability

3. Feasibility
ASSESSING SUITABILITY

• Screening before detailed analysis for acceptability & suitability

• 2 stage process for establishing for each option:

1. Rationale/strategic logic

2. Relative merits

Establishing rationale
WHY IS IT A GOOD IDEA?

• It would, for example, consist of assessing the extent to which a strategy:

– Exploits an opportunity in the environment & avoids threats

– Capitalises on the organisation’s strengths & core competencies & avoids or

remedies weaknesses

– Addresses cultural & political contexts