STRATEGIC MANAGEMENT

AND BUSINESS POLICY

ABDU LATIF SALLEH, PhD

College of Business Administration
Prince Sultan University
 What is Strategic Management
Strategic Management entails three ongoing processes:
1.Analysis:
- Analysis of strategic goals and the external
and internal environments
2.Decisions:
- What industries to compete?
- How should we compete?
3.Actions:
- Actions to implement decisions
 Strategic Management

Strategic management consists of the

analyses, decisions, and actions an
organization undertakes in order to
create and sustain competitive
advantages.
 Four Key Attributes of Strategic
Management

• Directs the organization toward overall goals

and objectives
• Includes multiple stakeholders in decision
making
•Needs to incorporate short-term and long-term
perspectives
•Recognize trade-offs between efficiency and
effectiveness
 Explaining the 4 Attributes
• Organizations must consider overall organizational
perspective rather than a functional one
• Organizations must satisfy multiple stakeholders
• Managers must maintain both a vision for the future as
well as a focus on its present operating needs
• “Doing the right thing” versus “doing things right”
• The need for “ambidextrous” behaviors, i.e. balancing
between “aligning resources to take advantage of
existing product markets” and “proactively exploring
new opportunities”
 Strategic Management Process

• Intended versus Realized Strategies

• Intended strategy refers to strategy in which
organizational decisions are determined only by analysis
• Realized strategy refers to strategy in which
organizational decisions are determined by both analysis
and unforeseen environmental developments,
unanticipated resource constraints, and/or changes in
managerial preferences.
• Realized strategy is a combination of deliberate and
emergent strategies.
 Corporate Governance and Stakeholder
Management

• CG is the relationship among various participants

in determining the direction and performance of
corporations.
• The primary participants:
(1) the shareholders,
(2) the management (led by the CEO), and
(3) the board of directors
 Stakeholder’s Claim
Stakeholder Group Nature of Claim
• Stockholders Dividends, capital appreciation
• Employees Wages, benefits, safe working
environment, job security
• Suppliers Payment on time, assurance of
continued relationship
• Creditors Payment of interest, repayment of
principal
• Customers Values, warranties
• Government Taxes, compliance with regulations
• Communities Good citizenship behavior:
charities, employment, not polluting
the environment
 Moving Beyond Stakeholders
• Social responsibility
− The expectation that businesses or individuals
will strive to improve the overall welfare of
society
• Environmental Sustainability
− companies are incorporating “triple bottom
line”, which assesses not only financial but also
social and environmental performance.
 Thinking Strategically:
Three Big Central Questions
1. What’s the company’s present situation?

- industry conditions and competitive pressure

- current performance and market standing

- resource strength and capabilities and competitive weaknesses

2. Where does the company need to go from here?

− Business(es) to be in and market positions to stake out
− Buyer needs and groups to serve
− Direction to head

3. How should it get there?

− A company’s answer to “how
will we get there?” is its strategy
 Strategy
• Strategy consists of competitive moves and business
approaches used by managers to run the company
• Strategy involves making analysis and choices
• The hows that define a firm's strategy
− How to grow the business
− How to please customers
− How to outcompete rivals
− How to manage each functional piece of the business (R&D,
production, marketing, HR, finance, and so on)
− How to respond to changing market conditions
− How to achieve targeted levels of performance
 Choosing a Strategy

• Strategic choices about “how” are based on

− Trial-and-error organizational learning about what has worked and
what has not worked
− Management’s appetite for taking risks
− Managerial analysis and strategic thinking about how best to
proceed, given market conditions and the company’s circumstances
• In choosing a strategy, management is in effect saying,
“Among all the many different business approaches and
ways of competing we could have chosen, we have decided
to employ this particular combination of competitive and
operating approaches in moving the company in the
intended direction, strengthening its market position, and
competitiveness, and boosting performance.”
Key Elements of a Successful Strategy

• Developing a successful strategy hinges on making

competitive moves aimed at
− Appealing to buyers in ways to set the enterprise apart
from rivals and
− Carving out its own market position
• Involves developing a distinctive “aha”
element to
− Attract customers and
− Produce a competitive edge
• Copying competitive moves of other successful
companies rarely works
Sustainable Competitive Advantage

• A company has a competitive advantage when sizeable

number of buyers prefer its products or services over
the offerings of competitors
− The company achieves sustainable competitive
advantage when the basis for this preference is
durable
• What separates a powerful strategy from an
ordinary strategy is management’s ability to
forge a series of moves, both in the
marketplace and internally, that produces
sustainable competitive advantage!
Four possible strategic approaches to achieve
sustainable competitive advantage
• Being the industry’s low-cost provider (a cost-based competitive
advantage)
• Incorporate differentiating features (a “superior product” type of
competitive advantage keyed to higher quality, better performance,
wider selection, value-added services, or some other attribute)
• Focusing on a narrow market niche (winning a competitive edge by
doing a better job than rivals
of serving the needs and preferences of
buyers comprising the niche)
• Developing expertise and resource
strengths not easily imitated or matched by rivals
(a capabilities-based competitive advantage)
 Examples of Competitive Advantage

• Strive to be the industry’s low-cost provider

− Wal-Mart
− Southwest Airlines

• Outcompete rivals on a key differentiating feature

− Johnson & Johnson – Reliability in baby products
− Harley-Davidson – King-of-the-road styling
− Rolex – Top-of-the-line prestige
− Mercedes-Benz – Engineering design and performance
− L.L. Bean – Good value
− Amazon.com – Wide selection and convenience
 Examples of Competitive Advantage
(contd)
• Focus on a narrow market niche
− eBay – Online auctions
− Jiffy Lube International – Quick oil changes
− McAfee – Virus protection auctions
− Starbucks – Premium coffees and coffee drinks
− The Weather Channel – Cable TV
• Develop expertise, resource strengths, and
capabilities not easily imitated by rivals
− FedEx – Next-day delivery of small packages
− Walt Disney – Theme park management and family entertainment
− Toyota – Sophisticated production system
− Ritz-Carlton – Personalized customer service
 STRATEGY EXAMPLE: McDONALD’S

• Strategic & financial objectives

− Continued growth
− Providing exceptional customer care
− Remaining an efficient & quality producer
− Offering high value
− Effectively marketing McDonald’s brand on a
global scale
 KEY ELEMENTS OF
McDONALD’S STRATEGY

• Adding 700-900 restaurants annually

• Using new menu items, low price specials, Extra Value
Meals to promote frequent customer visits
• Being highly selective in granting franchises
• Choosing sites convenient to customers
• Focusing on limited product line & consistent quality
• Careful attention to store efficiency
• Extensive advertising & use of Mc prefix
• Hiring courteous personnel; paying an equitable wage;
& providing good training
 Why Do Strategies Evolve?

• A company’s strategy is a work in progress

• Changes may be necessary to react to
− Shifting market conditions
− Technological breakthroughs
− Fresh moves of competitors
− Evolving customer preferences
− Emerging market opportunities
− New ideas to improve strategy
− Crisis situations
 Crafting Strategy Is an
Exercise in Entrepreneurship

• Strategy-making is a market-driven activity involving

− Studying market trends and competitors’ actions
− Keen observation of customer needs
− Scrutinizing business possibilities based on new technologies
− Building firm’s market position via acquisitions or new
product introductions
− Pursuing ways to strengthen firm’s competitive capabilities
− Proactively searching out opportunities to
• Do new things or
• Do existing things in new or better ways
 Linking Strategy With Ethics

• Ethical and moral standards go beyond

− Prohibitions of law and the language of “thou shalt not”
to issues of
− Duty and “right” vs. “wrong”
• Ethical and moral standards address
“What is the right thing to do?”
• Two criteria of an ethical strategy:
− Does not entail actions and behaviors that cross the line from
“should do” to “should not do” and “unsavory” or “shady”
and
− Allows management to fulfill its ethical duties to all
stakeholders
 A Firm’s Ethical
Responsibilities to Its Stakeholders

Owners/shareholders – Rightfully expect some form of return on their investment

Employees - Rightfully expect to be treated with dignity and respect for
devoting their energies to the enterprise

Customers - Rightfully expect a seller to provide them with a reliable, safe product o
service
Suppliers - Rightfully expect to have an equitable relationship with firms they
supply and be treated fairly

Community - Rightfully expect businesses to be good citizens in their community

 Role of Senior Executives:
Linking Strategy with Ethics

• Forbid pursuit of ethically questionable business

opportunities
• Insist all aspects of company strategy
reflect high ethical standards
• Make it clear all employees are
expected to act with integrity
• Install organizational checks and balances to
− Monitor behavior
− Enforce ethical codes of conduct
− Provide guidance to employees in gray areas
• Display genuine commitment to conduct business
activities ethically
 Business Model

• A company’s business model describes the economic logic of how

its strategy can deliver value to customers at a price and cost that
yields acceptable profitability

• Business model deals with whether the revenues and costs flowing
from the strategy show business viability

• It is about the “bottom line”

• A company should have a business model that promises acceptable

profit, regardless of whether there are competitors or not.
 Relationship Between
Strategy and Business Model

Strategy . . .
Deals with a company’s competitive initiatives
and business approaches

Business Model . . . Concerns whether

revenues and costs flowing from the strategy
demonstrate a business can be amply
profitable and viable
Strategic Management Process

• The steps by which management converts a firm’s

vision, mission, and goals/objectives into a workable
strategy

• Consists of four stages:

• Formulation of Mission and Policies
• External and Internal Analysis (SWOT analysis)
• Development of strategies
• Implementation of strategies
• Evaluation/adjustment
Strategy-Making Hierarchy

• A company’s overall strategy is a collection of

strategic initiatives and actions devised by managers
and key employees up and down the whole
organizational hierarchy

• It comprises four distinct levels of strategy

• Corporate strategy
• Business/competitive strategy
• Functional strategy
• Operating strategy