2.key concepts in strategic management

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STRATEGIC STRATEGIC MANAGEMENTMANAGEMENT

KEY CONCEPTSKEY CONCEPTS

Eugene Miheso SwinnerstoneEugene Miheso Swinnerstone

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Strategy

Strategy is the statement of action that the company will undertake to generate and multiply the firm’s competitive advantage.

A strategy is a long-term plan or course of action that will enable the firm attain its objectives

Waterman et al(1980) define strategy as a coherent set of actions aimed at gaining a sustainable competitive advantage over competitors or improving its position visa vis its customers

Glueck et al (1988) defines a strategy as a unified,comprenhensive and integrated plan that relates the strategic advantages of the firm to the challenges of environment.

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Strategy contd… Henry Mintzberg presents five

dimensions of strategy which have been referred to as characteristics of a good strategy

Strategy as plan-course of action consciously and purposely developed well in advance to achieve certain goals

Strategy as ploy – a specific maneuver to out wit an opponent crafted with a lot of creativity and uniqueness

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Strategy contd..

Strategy as a pattern- a stream or a series of actions or activities

Strategy as position- a means of locating an organization in the environment. A good strategy should put the firm in a certain desirable position

Strategy as perspective- a strategy should direct the entire organization to a common thinking that is aimed at achieving certain goals

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Aspects of Strategy

Strategy as a statement of ends, purpose, and intent – creating new visions for the future to inspire the organization to greater efforts or wider scope

Strategy as a high level plan – answering questions of: who, when, where, how and with what?

Strategy as the means of beating the competition

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Aspects of Strategy

Strategy as an element of leadership – setting strategy is one of the main responsibility of a leader

Strategy as positioning for the future – positioning the enterprise for the future

Strategy as building capability – maintaining a lead in specific technical skills or investing to sustain a general ability to react fast to unexpected circumstances

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Aspects of Strategy

Strategy as fit between capabilities and opportunities- success results from a good match between the capabilities of the enterprise and the opportunities to serve the needs of customers better than competitors

Strategy as a result of deep involvement with the business – deep involvement of managers with the business rather than doing abstract exercises in strategy formulation

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Aspects of Strategy

Strategy as a pattern of behavior resulting from embedded culture – the strategies that an enterprise may adopt are partly determined by its culture and this may be a source of competitive (dis) advantage

Strategy as an emerging pattern of successful behavior – part of strategy may be ingrained in recognizing the patterns that seem to have led to success even if these patterns arose by chance

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Types of strategies

Planned strategies – carefully planned set of decisions and actions worked out in some detail to achieve the objectives and goals of the firm

Strategy is as a result of a scientific process of thought,analysis,decision making and action programming that is focused on crystallizing the best method or approach to achieve the specified objectives and goals of the firm

Emergent and incremental strategies – emerge from with in the organization without any formal plan

Strategies are often the emergent response to unforeseen circumstances

Mintzberg argues that emergent strategies are often successful and may be more appropriate than intended strategies

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Strategic Intent

This is a corporate ambition, challenge that an organization sets itself to achieve in a period of say 10-20 years e.g. Makerere – “To be the Harvard of Africa”

It is an obsession to win at all levels in the organization sustained over a long period of time.

Strategic intent encompasses an active management process which includes focusing the organization's attention on the essence of winning; motivating people by communicating the value of the target; leaving for individual and team contribution, sustaining enthusiasm by providing new operational definitions as circumstances change and using intent consistently to guide resource allocation.

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Intent contd..

Underlying the concept of strategic intent is the notion that strategy formulation involve setting ambitious goals which stretch the company and then finding ways to build the resources and capabilities necessary to attain those goals

Classic examples of strategic intent from multinational companies include;

General Electric- “To be No.1 or No.2 in every market”

Coca-Cola – “To put coke with in the arms reach of every customer in the world”

Komatsu – “To encircle caterpillar”

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Stretch

A stretch is a strategic planning period adopted by an organization

The period depends on the goals the company sets itself to achieve as well as the changes in the environment

It normally ranges between 5-10 years

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Competitive Advantage

Competitive advantage refers to that internal factor that enables a business firm to have market superiority or leverage over its competitors on a sustainable basis

It entails having an edge over competitors and achieving above industry average profitability that will maintain that position

Competitors advantage explains why some companies perform better than others in the same industry

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Generic building blocks of Competitive Advantage

Superior efficiency

Superior Quality

Competitive Advantage

SuperiorInnovation

SuperiorCustomer

responsiveness

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Distinctive Competences

Competences refer to things that a corporation can do exceedingly well.

When these competences are superior to those of the competitors they are often called distinctive competences.

Distinctive or core competences are the companies’ characteristic areas of expertise and consist of the synergy of resources such as innovativeness, creativity, employee motivation and knowledge, technological and professional expertise.

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Strategic competition

Competing for long term survival. Business managers have to recognize that

competition is not just a short term phenomenon for short term gains but a long term effort to guarantee a better future that can not be easily overturned.

It requires business strategists to apply intelligence, imagination, accumulated resources and coordinated actions for their enterprises to survive and thrive for along time.

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Basic elements of competitive behavior

ability to understand competitive behavior as a system in which competitors,customers,money and other resources continually interact

ability to use this understanding to predict how a given strategic move will rebalance the competitive equilibrium

Resources that can be permanently committed to new uses even though the benefits are differed

Ability to predict risk and return with reasonable accuracy and confidence to justify the commitment of resources

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Competitive exclusion

The principle of competitive exclusion was developed by Prof.G.f Gause of Moscow university

He carried out an experiment involving two pairs of protozoa

He put together the two pairs of protozoa of the same genesis in two bottles with adequate food supply.

One pair was exactly identical and the other was not. After some time the identical pair had died while the identical were still alive

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Competitive exclusion condt …

Results were that if animals were of different species they would survive and persist together longer than if they were identical

This experiment was purely biological but has turned out to be useful in business .Lessons learned from the experiment ;

Two companies can not coexist if they make their living in an identical way

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Competitive exclusion condt …

Companies that are exactly alike can not survive for long. Those that are significantly different will coexist and survive longer

To compete favorably and grow business enterprises must create a sustainable difference from each other

Survival and growth of any enterprise is always and at the expense of another

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Strategic thinking

This refers to long-term thinking It involves looking ahead and

plotting the obsolescence of what now produces your livelihood

It involves being obsessed with the future-building scenarios of the future and plotting backwards to see how the future can be influenced by the present actions

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Strategic thinking contd…

A strategic thinker usually exhibits two major behaviors

Ability to understand the significance of the events without being influenced by the current opinion or changing attitudes

Ability to take decisions quickly without being deterred by the perceived danger

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Strategic fit

This refers to the attempt to align, fit or match a company’s resources and capabilities to the demands of the environment in which the company operates.

The aim of strategic fit is to match the company strengths and weaknesses with environmental opportunities and threats

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Key success factors

KSF refer to variables that can significantly affect the overall competitive positions of all companies with in any particular industry

They are determinants of success with in any industry

Key success factors in the banking industry may include sound capital base, high skilled people, state-of-the-art-technology, security etc

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vision

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Vision

Vision is a mental perception of the kind of the environment an individual or an organization aspires to create with in a broad time horizon and the underlying conditions for the actualization of this perception

It is a concept for a new and desirable future reality that can be communicated throughout the organization

It is central to the process of direction setting and represents a big picture of the desired future state of business that business manager has in his mind

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Mission

This is the basic reason for the organization's existence-tells what the company is providing to the society

Defines the fundamental unique purpose that sets a company apart from others of its kind

Identifies the scope of the company's operations in terms of products offered and markets served

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Mission contd ..

A mission statement should identify; Customers to be served Needs to satisfied Means of satisfying these needs in

terms of products, processes and technology

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Core purpose

This is the organization's reason for being as seen from the public’s point of view

An effective purpose reflects people’s idealistic motivations for doing the company work e.g. the core purpose of Hewlett-Packard is “to make technical contributions for the advancement and welfare of humanity”

Where as you might achieve a goal or complete a strategy you can not fulfill a purpose, it is like a guiding star on the horizon-forever pursued but never reached

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Core values

These are the essential and enduring tenets of an organization

A set of timeless principles that have intrinsic value and importance to those inside the organization

These are values that the organization holds so dear and they guide its people’s behavior

An organization decides for itself what values it holds to be core depending on the current environment, competitive requirements or management fads.

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Core values contd…

Companies tend to have only a few core values usually between three to five e.g. the core values for Merck are;

Corporate social responsibility Unequivocal excellence in all aspects

of the company Science based innovation Honesty and integrity Profits, but profits from work that

benefits humanity

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Corporate philosophy

This refers to basic beliefs, values aspirations and philosophical priorities that strategic decision makers are committed to and that guide the management of the company

It tells how the company intends to do business and often reflects the company's recognition of its social and ethical responsibility

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“Limitations live only in our minds. But if we use our imaginations, our possibilities

become limitless”

Jamie Paolinetti

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