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BUSINESSSTRATEGY - I
PIYOOSH BAJORIA
Scope of Discussions / Objectives
• Introduction to Strategic Management
• Strategic Purpose – Vision / Mission etc.
• Environmental Scanning – PESTEL / SWOT etc.
• Strategy Development - Multiple Approaches
• Corporate Strategy – Various Facets
• Business Strategy - Generic / Hybrid etc.
• Global Strategy – Products & Services Adaptation / Choice of Market Entry
• Strategy Implementation – Key implementation Tasks
Learning Outcomes
• Differentiate Strategic Management from Operational Mgt & identify the strategy development Process including different levels of Strategy
• Articulate the purpose of an organization’s existence & communicating the same to all stakeholders
• Analyze the key structural drivers in the business environment to identify opportunities / threats and strategic gaps
• Discuss contemporary approaches to strategy development processes / evaluation of strategic choices ; assess the role of a corporate parent in a multi-business organization and it’s value adding capabilities in managing a porfolio of businesses
• Contrast the different bases of achieving competitive advantage and outline the means to achieve sustainability in a competitive environment for an SBU
• Outline the ways to go global and achieve global competitiveness and identify risks involved
• Discuss the Key tasks for effective strategy implementation and assess how to align them
Introductionto
Strategic Management
5
Customer Retention - Key Issues
A Recent Survey says –
• “More than 90 % of unsatisfied customers do not complain”
• “It costs 5 times more to get a new customer than it does to keep a current customer”
6
Customer Expectations / Desire
What do Customers look for in
Any Product or Service?
• Right Price (affordability factor)
• Right Quality (reliability factor)
• Right Delivery (service factor)
Dawn of a New Era ……………..
Old Perceptions New Realities
• Price : Seller’s Cost plus Profit
• Quality : Standards determined
by the Seller
• Marketing : A distinct Functional
Activity
• Focus on What is good for the
company
• Customer’s freedom of choice
limited
• Customer doesn’t know a thing
• Price : What customer is willing to pay
• Quality : Standards determined by
the customer
• Marketing : Is Everything / The whole
Business is Marketing
• Focus on What is good for the
customer
• Customer’s freedom of choice
unlimited
• Customer is the King
What is Strategy?
• Large-scale, future-oriented plan
• Used to interact within competitive environment to achieve company goals
• Provides a framework for managerial decisions
• Reflects a company’s awareness of the main elements of competition
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Definition of Strategy
Strategy is the direction and scope of
an organisation over the long term,
which achieves advantage in a
changing environment through its
configuration of resources and
competences with the aim of fulfilling
stakeholder expectations.
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategic decisions
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategic Decisions are Likely to :
• Be complex in nature
• Be made in situations of uncertainty
• Affect operational decisions
• Require an integrated approach (both inside and outside an organisation)
• Involve considerable change
The Nature of Strategic Management
Strategic management:The set of decisions and actions that
result in formulation and implementation
of plans designed to achieve a
company’s objectives
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategy and Operations
RoutinisedOrganisation-wide, holistic
Day to day issuesLong term
Operationally specificAmbiguous / uncertain
Operating within existing strategy
Developing new resources
Managing existing resources
Creating new directions
Techniques and actionsConceptualisation of issues
Operational ManagementStrategic Management
Managers’ Strategic Thinking(Current Status & Future Prospects)
“ Where are we now?”( market standing / competitive pressures / strengths & weaknesses)
“ Where do we want to go?”(direction in which management believes the company should be headed)
“ How will we get there?”(crafting & executing a strategy to get the company from where it is to where it wants to go)
Contribution of Leading Management Gurus
Igor Ansoff’s Strategic Success Paradigm
Based on extensive research study on Acquisitions by American Companies (1948-1968)
Acquisitions based on a rational strategy fared better than those based on opportunistic decisions
The Key Elements of the paradigm are –
• No universal success formula for all firms
• Environment turbulence determines the strategy required for the success of a company
• The strategy aggressiveness should be aligned with the environmental turbulence
Ansoff Matrix / Ansoff GridExisting Products New Products
Existing Market Market Penetration
Product Development
New Market Market Development
Diversification
Ansoff’s Matrix Provides four different growth strategies
Market Penetration – Companies seek to achieve growth with existing products in their current market segments .
Market Development – Companies seek growth by targeting it’s existing products to new market segments
Product Development – Companies develop new products targeted to it’s existing market segments.
Diversification – Companies grow by diversifying into new business by developing new products for new markets.
Ansoff’s Matrix and Risk
The greater the degree of newness, the greater is the degree of risk
• Market Penetration – little risk involved
• Market Development – moderate risk
• Product Development – moderate risk
• Diversification – high degree of risk as both product and market are new & unknown
Ansoff’s Matrix – Use & Application
• The Matrix is a framework to explore directions for strategic growth
• It is the most commonly used model for analysing the possible strategic direction that a business should take
• It not only identifies and analyses different growth opportunities, it also encourages planners to consider both expected returns and risks
• However, real world examples do not fit neatly into the four cells of the Ansoff’s Matrix
• The management capabilities should be aligned with the environment to optimize the company’s success
• Book “Corporate Strategy” (1965) – played a key role in the development of strategic planning
• Introduced concepts – “Gap Analysis” & “Synergy”
Mintzberg – Strategy as Craft
Added a new dimension to strategic management by bringing the personal side of the manager
Book “The Nature of Managerial Work (1973)” – advocated a more human approach to strategy formulation & implementation
Saw strategic formulation as a delibrate and delicate process
Peter Drucker’s Contribution
• “Management is not just passive & adaptive behaviour”
• Managing implies responsibility for attempting to shape the economic environment for planning and carrying through changes in that economic environment
• Major contribution to business strategy was the introduction of MBO concept (1954)
• MBO is more than a technique of management, it is a philosophy of Managing
Michael Porter : Strategy and Competitive Advantage
Introduced generic strategies like focus, cost leadership, cost differentiation etc.
Five Forces Theory – • the threat of new entrants
• the bargaining power of customers
• the bargaining power of suppliers
• the threat of substitute products
• the rivalry between existing players
Books – “Competitive Strategy” (1980) and “ The Competitive advantage of Nations” (1990)
1-23
Three Levels of Strategy
• Corporate level: board of directors, CEO & administration [Highest]
• Business level: business and corporate managers [Middle]
• Functional level: Product, geographic, and functional area managers [Lowest]
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
LEVELS OF STRATEGY
• Corporate level
– Determine overall scope of the organisation
– Add value to the different business units
– Meet expectations of stakeholders
• Business level (SBU)
– How to compete successfully in particular
markets
• Operational
– How different parts of organisation deliver
strategy
Levels of Strategic Management
1-26
Strategy Makers
• Ideal strategic team includes decision makers from all three levels
• Top managers must give final approval
• Strategic decisions coincide with managers’ responsibilities
1-27
Strategy Makers: The CEO
• A firm’s CEO plays a dominant role in strategic planning
• The CEO’s principal duty is giving long-term direction to the firm
• The CEO bears ultimate responsibility for the firm’s success and strategic success
• CEOs are typically strong-willed,
company-oriented individuals
1-28
Benefits of Strategic Management
• Managers at all levels interact in planning and implementing strategy
• Similar to participative decision making
• Assessing strategy formulation requires looking at nonfinancial evaluations as well as financial ones
• Promoting positive behavioral consequences enables achievement of financial goals
1-29
Strategic Management Process
• Businesses vary in formulation and other processes
• The basic components of the models used to analyze strategic management are similar
• Strategic management is a process—a flow of information through interrelated stages of analysis towards the achievement of organisational goals
1-30Components of Strategic
Management Model• Company Mission
• External Analysis
• Long-Term Objectives
• Short-Term Objectives
• Policies Empowering Action
• Strategic Control & Continuous Improvement
• Internal Analysis• Strategic Analysis &
Choice• Generic & Grand
Strategies• Functional Tactics• Restructuring,
Reengineering & Refocusing
Existing Business Model
Mission , Vision, Values & Goals
External Analysis: Opportunities &
Threats
Internal Analysis: Strengths & Weaknesses
SWOT Strategic Choice
Business - Level Strategies
Functional – Level Strategies
Global Strategies
Corporate – Level Strategies
Governance and Ethics
Designing Organization Culture
Designing Organization Structure
Designing Organization
Controls
Components of Strategic Management Process
STRATEGY FORMULATION
STRATEGY IMPLEMENTATION
FE
ED
BA
CK
StrategicPurpose
Organization – Core Philosophies
Vision Statement
• An inspiring statement of what the organization intends to become and to achieve in the future
• “What we want to be”
• The statement incorporates our Beliefs
• Should project a compelling story about the future (E.g. Steve Jobs : “ An Apple on Every Desk”)
• Is culture-specific :Simply put, the vision could state what the founder ultimately envisions the business to be – in terms of growth, values, employees, contribution to society, etc
1-34
What is a Company Mission?
• Company Mission:A broadly framed but enduring statement of a firm’s intent. It is the unique purpose that sets a company apart from others of its type and identifies the scope of its operations in product, market, and technology terms.
Organization – Core Philosophies… Mission Statement
• Spells out how we see ourselves fulfilling our ideas of “What we want to be” in broad terms
• Describes the overall purpose of the organization
• Is an organization’s vision translated into written form- spelling in concrete terms the leader’s view of the direction and purpose of the organization
• What do we do?
• How do we do it?
• For whom do we do it?
1-36
The Need for an Explicit Mission
• Why is this firm in business?
• What are our economic goals?
• What is our operating philosophy in terms of quality, company image, and self-concept?
• What are our core competencies and competitive advantages?
• What customers do we and can we serve?
• How do we view our responsibilities to stockholders, employees, communities, environment, social issues, and competitors?
1-37
Formulating a Mission
• The typical business begins with the beliefs, desires, and aspirations of a single entrepreneur
• These beliefs are usually the basis for the company’s mission
• As the business grows or is forced to alter its product, market, or technology, redefining the company mission may be necessary
1-38
Mission Statement Components
Customer-market Product-service Geographic Domain Technology Concern for Survival Philosophy Self-concept Concern for Public Image
1-39Inputs to the Development of
Company Mission
Organization – Core Philosophies…
Values
• Both the mission and vision statements reside in a “sea of values”
• Organizational beliefs – respect for people, concern for individuals, approach to innovation, reward system, encouragement for Team work etc
• Describe what your Management Team really cares about – “what it holds dear”
(e.g. “How do your managers respond to a trade-off between product quality and profit? That’s really a question of values”.)
Organizational structure – Philosophical Hierarchy
Vision
Mission
Corporate Objectives
Corporate Goals
Strategic Plans
Policies
Procedures
Core-Values &
Conduct
1-42
Perceived Stakeholders
• Customers
• Government
• Stockholders
• Employees
• Society
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Corporate Social Responsibility
Internal Aspects External Aspects
Employee welfare Environmental issues
Working conditions Products
Job design Markets and marketing
Intellectual property Suppliers
Employment
Community activity
Human rights
1-44
Types of Social Responsibility
• Economic – the duty of managers, as agents of the company owners, to maximize stockholder wealth
• Legal – the firm’s obligations to comply with the laws that regulate business activities
• Ethical – the company’s notion of right and proper business behavior
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Corporate Governance
The governance framework• whom the organisation serves
• how the purposes and priorities should be decided
• how an organisation should function
• how power is distributed among stakeholders
EnvironmentalScanning
1-47
Firm’s External Environment
1-48
Layers of the business environment
1-49
Macroenvironment – PESTEL (1)
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Macroenvironment – PESTEL
Political• Government stability• Taxation policy• Foreign trade
regulations• Social welfare
policies
Economic• Business cycles• GNP trends• Interest rates• Money supply• Inflation• Unemployment• Disposable income
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Macroenvironment – PESTEL Sociocultural
• Population demographics
• Income distribution• Social mobility• Lifestyle changes• Attitudes to work and
leisure• Consumerism• Levels of education
Technological• Government spending on
research• Government and industry
focus on technological effort
• New discoveries /developments
• Speed of technology transfer
• Rates of obsolescence
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Macroenvironment – PESTEL
Environmental• Environmental
protection laws• Waste disposal• Energy consumption
Legal• Competition law• Employment law• Health and safety• Product safety
Porter’s Five Forces Model• Risk of Entry by Potential Competitors
• Threat of Sustitutes
• Bargaining Power of Buyers
• Bargaining Power of Suppliers
• Industry / Competitive Rivalry
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The Five Forces Framework
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Five Forces Analysis
The threat of entry ...Dependent on barriers to entry such as:• economies of scale• capital requirements of entry• access to supply or distribution channels• customer or supplier loyalty• experience• expected retaliation• legislation or government action• differentiation
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Threat of substitutesReduction in demand for products as customers
switch to alternatives:• Product for product substitution
– e.g. email for post
• substitution of need– e.g. reliable and cheap appliances reduce need for
maintenance services
• generic substitution– competition for household income, e.g. cars versus holidays– doing without
Five Forces Analysis
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Buyer power is likely to be high where there is / are:
• a concentration of buyers• many small operators in the supplying industry• alternative sources of supply• low switching costs • components/materials that are a high percentage
of cost to the buyer leading to “shopping around”• a threat of backward integration
Five Forces Analysis
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Supplier power is likely to be high where there is / are:
• a concentration of suppliers• customers that are fragmented and bargaining
power low• high switching costs • powerful supplier brand • possible integration forward by the supplier
Five Forces Analysis
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Competitive Rivalry is likely to be high when:
• competitors are in balance• there is slow market growth (product life cycle)• there are high fixed costs in an industry• there are high exit barriers• markets are undifferentiated
Five Forces Analysis
Competitive rivals are organisations with similar products and services aimed at the same customer group = direct competitors
Competitive rivals are organisations with similar products and services aimed at the same customer group = direct competitors
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The SWOT Matrix
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategic Gaps
• Opportunities in business environment not being
fully exploited by the competition:
• substitute industries
• other strategic groups or strategic spaces
• the chain of buyers
• complementary products and services
• new market segments
• markets developing over time
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategic Capability
• Resources – Tangible resources – physical assets of an organisation– Intangible resources – non-physical assets of an
organisation
• Competences– The activities and processes through which an
organisation deploys its resources effectively
Strategic capability is the adequacy and suitabilityof the resources and competences of anorganisation for it to survive and prosper
Strategic capability is the adequacy and suitabilityof the resources and competences of anorganisation for it to survive and prosper
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Resources• Physical resources
– Machines, buildings, production capacity
• Financial resources– Capital, cash, debtors/creditors, suppliers of
money (shareholders, bankers etc)
• Human resources– Number and mix of people, skills and knowledge
• Intellectual capital– Patents, brands, business systems, customer
databases, “goodwill”
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Competences
• How an organisation employs and deploys its resources
• Efficiency and effectiveness of physical, financial, human and intellectual resources• How they are managed• Cooperation between people• Adaptability• Innovation• Customer and supplier relationships• Learning
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Resource-based View of Strategy
• Competitive advantage derives from the distinctiveness of an organisation’s capabilities
• Some businesses achieve extraordinary profits compared with others in the same industry
• Their resources or competences permit• production at lower cost
or• generation of superior product or service at
standard cost
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The Experience Curve
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Implications of the Experience Curve
• Growth not optional• Longer experience means lower costs• Threat of competitors gaining cost advantages
• Real unit costs should decline each year
• First mover advantage can be important• Accumulated experience
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Implications of the Experience Curve (contd)
But• Sustained competitive advantage unlikely due to
unachievable market share
Therefore• Cost reduction becomes a threshold competence• Outsourcing may become appropriate
StrategyDevelopment
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The Dynamics of Paradigm Change
Source: Adapted from p. Grinyeh and J.-C. Spender, Turnaround: Managerial recipes for strategic success, Associated Business Press, 1979, p. 203.
Exhibit 11.5
Different Processes of Strategy Development – in Multiple forms & in different contexts
• There is no one right way in which strategies are developed (Eg: Fast changing environment Vs slow changing environment)
• Processes of strategy development differ over time and in different contexts
Different Processes of Strategy Development – in Multiple forms & in different contexts (contd.)
• Perceptions of how strategies develop will be seen differently by different people (Senior Executives / Middle Management / Public Sector)
• It is likely that no one process describes strategy development in any organisation – normally there are multiple processes at work
Intended and Emergent Strategies
• Intended Strategy is an expression of desired strategic direction deliberately formulated or planned by Managers
• Implies that the Intended Strategy is also planned in terms of resource allocation, control systems, organisational structure etc
• Emergent Strategy comes about through day-to-day routines, activities and processes in an organisation
• The Routine activities, though not direct, have a significant role in the development of strategy
Intended Processes of Strategy Development
Strategic Planning Systems
• A form of systematised, step-by-step, chronological procedures involving different Functions / Departments of the Organisation
• Starting point is a set of guidelines / assumptions about the external environment (price levels / supply status etc)
• Plans drawn up by various businesses / divisions and passed on to the Corporate level
Strategic Planning Systems(contd.)
• Corporate Plan – resulting from the aggregation of business plans
• A number of financial / strategic targets are drawn up to provide a basis for performance monitoring
• There could be minor variations while drawing up the plans – in different organisations
Strategic Planning Systems – Advantages / Uses
• It provides a structured means of analysis and thinking about complex problems
• Encourages managers to question and challenge the current wisdom
• Encourages a long term view of organisational strategy (Eg: in the case of FMCG sector – 5 to 7 years)
• Provides a means of coordination (between various businesses)
• It communicates intended strategy from the TOP
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
A Strategic Planning Cycle
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategic Planning
Emergent Processes of Strategy Development
Logical Incrementalism
• Is the development of strategy by experimentation and learning from partial commitments rather than through global formulations of total strategies
• Managers have a generalised rather than specific view of where they want the organisation to be in future
• Effective Managers try to be sensitive to environmental signals through constant scanning and test changes in strategy in small scale steps
Logical Incrementalism (contd.)
• Commitment to strategic options may be tentative in the early stages of strategy development
• Experiments through subsystems (people involved in product development / product positioning / diversification etc) – building on the experience gained in that business
• Top managers utilise a mix of formal / informal / social and political processes – to draw an emerging pattern of strategies from these subsystems
• Logical incrementalism is a conscious, purposeful, proactive, executive practice – to improve available information and build people’s identification with the strategy development
Logical Incrementalism
Source : Strategies for Change: Logical Incrementalism ( By James B. Quinn)
A Management philosophy for achieving broad organisational goals
Enables making strategic decisions in small steps
Small steps attempt to resolve conflicting views of participants
Reduces Risk by capitalizing on knowledge that is gained during the process
Logical incrementalism has the advantage of flexibility / but likely to be time-consuming and inefficient
Externally Imposed Strategy
• Imposition of strategy by powerful external stakeholders
• Mainly Government / Regulatory Bodies – exercising norms / stipulations (Eg: Privatisation)
• MNC’s being advised – for Joint Ventures / local alliances
• Imposed strategy is “designed” – outside the organisation
• Imposed strategy – to be implemented – might entail large capital expenditure. (Eg: In Paper Mills: Capex on Production Machinery Vs Recycling / Pollution Control Machinery)
Strategy Development – Additional Issues Managers Face
The challenge of Strategic Drift
• Strategies – over a period of time – progressively fail to address the strategic position of the company and performance deteriorates
• There are strong forces at work that are likely to push organisations towards this pattern
Strategy Development – Additional Issues Managers Face
The challenge of Strategic Drift (contd.)
• Incremental strategic change is a natural outcome of the influence of organisational culture, collective experience, political processes
and prior decisions
• Strategic drift results ultimately in a complacent organisation
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Challenges for Strategy Development
• Strategic drift– Incremental strategic change influenced by
• organisational culture• individual and collective experience• political processes• prior decisions
– Risk of getting out of line with faster changes in environment
– Need to encourage challenge and change of core assumptions
• Learning organisation
The Learning Organisation
• Traditionally, organisations are seen hierarchies and bureaucracies – set up to achieve objectives and maintain control
• Structures convey stability rather than change
• A learning organisation – is the one that is capable of continual regeneration from the variety of knowledge, experience and skills of individuals within a culture – which encourages mutual questioning
• A learning organisation – is the one where the collective knowledge of all individuals in a company normally exceeds what the organisation itself “knows” and is capable of doing
The Learning Organisation (contd.)
• Formal organisational structures stifle organisational knowledge and creativity
• Organisations – need to look at themselves as “social networks”
• Managers need to play a less directive and more facilitative role
• A learning organisation – is the one inherently capable of change and with a capacity for organisational learning
Uncertain and Complex Conditions – Strategy Development
• A major problem of strategic management – coping with uncertainty
• Environments – differ in their form and complexity
• Simple / Static conditions – the environment is relatively straight forward to understand and does not undergo significant change
(Eg. Mass production companies / Raw Material Suppliers)
• All Companies end up following same strategy – results in high degree of competition / low margins
• Dynamic conditions – Managers need to consider environment of the
future / not of the past
Uncertain and Complex Conditions – Strategy Development (contd.)
• Companies resort to scenario planning – for making sense of the future
• Emphasis should be to encourage individuals and groups to be forward thinking and intuitive
• In complex situations – an environment is difficult to comprehend
• Coupled with dynamic conditions – the environment is a combination of complexity and uncertainty
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategy Development in Environmental Contexts
Exhibit 11.8
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategy Development Processes
Exhibit 11.1
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategy Development Routes
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategic Leadership
•Change Agent
• Individual or group that effects strategic change in an organisation
• The process of influencing an organisation in its efforts towards achieving an aim or goal
• Charismatic leaders
• Instrumental or transactional leaders
Strategic Leadership
• Vision, eloquence, and consistency
• Articulation of the business model
• Commitment
• Being well informed
• Willingness to delegate and empower
• The astute use of power
• Emotional intelligence: self-awareness, self- regulation, motivation, empathy, social skills
Good leaders of the strategy-making process have a number of key attributes:
CorporateStrategy
2-96
Levels of Strategy-Makingin a Diversified Company
Corporate Strategy
Business Strategies
Functional Strategies
Operating Strategies
Two-Way Influence
Two-Way Influence
Two-Way Influence
Corporate-Level Managers
Business-Level Managers
Functional Managers
OperatingManagers
2-97
Levels of Strategy-Making ina Single-Business Company
Business Strategy
Two-Way Influence
Functional Strategies
Operating Strategies
Business-Level Managers
OperatingManagers
Functional Managers
Two-Way Influence
98
Corporate-Level Strategy: How do we sustain competitive advantages in our current business? What new businesses or industries do we wish to enter?
Corporate-Level Strategy
Corporate strategy is used to identify: • Businesses or industries that the company
should compete in• Value creation activities that the company
should perform in those businesses • Methods to enter or leave businesses or
industries in order to maximize its long-run profitability
Companies must adopt a long-term perspective in formulating a corporate-level strategy.
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategic Choices
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Corporate Level Issues
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Corporate Rationales
•SBUs below potential (‘parenting opportunity’)•Relevant central resources•Suitable portfolio
•Share resources/skills•Identify bases for sharing•Identify benefits
•Acquire assets•Divest assets•Low strategic role in SBU
Strategic requirements
•Competences used to create value in SBUs
•Synergy•Agent for financial markets•Limited SBU value creation
Logic
Parental developers
Synergy managers
Portfolio managers
•Understand SBUs (‘feel’)•Effective linkages•SBUs autonomous•SBU performance-based incentives
•Collaborative SBUs•Corporate staff as integrators•Overcome resistance to sharing•Corporate-based incentives
•Autonomous SBUs•Small, low cost corporate staff•SBU performance-based incentives
Organisational requirements
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Corporate Portfolio Management
• Portfolio balance– Markets– Organisation’s needs
• Attractiveness of business units– Profitability– Growth rates
• Portfolio ‘fit’– Synergies between business units– Synergies with corporate parent
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The Growth Share (or BCG) Matrix
The BCG Matrix
• The BCG Matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit
• To ensure longterm value creation, a company should have a portfolio of products – both high – growth products in need of cash inputs and low-growth products that generate a lot of cash
• BCG Matrix has two dimensions : market share and market growth
• Placing Products in the BCG Matrix results in four categories in the portfolio of a company :
• STARS – High Growth / High Market Share
• CASH COWS – Low growth / High Market Share
• DOGS – Low Growth / Low Market Share
• QUESTION MARKS – High Growth / Low Market Share
• BCG Matrix Method can help understand a frequently made strategy mistake – having a one-size-fits-all approach to strategy : such as a generic growth target (say 10% p.a) or a generic return on capital (say 8% p.a) for the entire corporation
GE / McKinsey Matrix
• The GE / McKinsey Matrix is a model to perform a business portfolio analysis on the strategic Business Units of a corporation
• A Business Portfolio is the collection of Strategic Business Units that make up a corporation
• The Aim of a portfolio Analysis is:• Analyse it’s current business portfolio and decide which SBU’s should receive more or
less investments• Develop growth strategies for adding new products and businesses to the portfolio• Decide which businesses or products should no longer be retained
• BCG Matrix is the best-known portfolio planning framework - the GE / McKinsey Matrix is a later and more advanced form of the BCG Matrix
• The GE / McKinsey Matrix is more sophisticated than the BCG Matrix in three aspects:
• Market / Industry attractiveness replaces market growth as the dimension of industry attractiveness
• Competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed
• GE / McKinsey Matrix works with a 3x3 Grid while the BCG Matrix has only 2x2 Grid (allows for more sophistication)
Strategic Business Units are portrayed as a circle plotted in the GE / Mckinsey Matrix, whereby:
• The size of the circles represent the market size
• The size of the pies represent the market share of the SBU’s
• Arrows represent the direction and the movement of the SBU’s in the future
Generic Strategies
Differentiation
Low-cost leadership
Focus
Grand Strategies Grand strategies, often called master
or business strategies, provide basic direction for strategic actions
Indicate the time period over which long-range objectives are to be achieved
Any one of these strategies could serve as the basis for achieving the major long-term objectives of a single firm
Firms involved with multiple industries, businesses, product lines, or customer groups usually combine several grand strategies
Types of Grand Strategies
Consortia Consortia
Concentrated Growth Concentrated Growth
Market Development Market Development
Product DevelopmentProduct Development
InnovationInnovation
Horizontal Integration Horizontal Integration
Vertical Integration Vertical Integration
Concentric Diversification Concentric Diversification
Conglomerate Diversification Conglomerate Diversification
TurnaroundTurnaround
DivestitureDivestiture
LiquidationLiquidation
Bankruptcy Bankruptcy
Joint Ventures Joint Ventures
Strategic Alliances Strategic Alliances
Market Development Market development commonly ranks
second only to concentration as the least costly and least risky of the 15 grand strategies
It consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion
Frequently, changes in media selection, promotional appeals, and distribution are used to initiate this approach
Product Development Product development
involves the substantial modification of existing products or the creation of new but related products that can be marketed to current customers through established channels
Innovation Strategy
Involves creating a new product life
cycle, thereby making similar existing
products obsolete
117
• Horizontal IntegrationThe process of acquiring or merging with industry competitors
• Vertical IntegrationExpanding operations backward into an industry that produces
inputs for the company or forward into an industry that distributes the company’s products
• Strategic OutsourcingLetting some value creation activities within a business be
performed by an independent entity
Repositioning &Redefining a Company’s Business Model
Corporate-level strategies are primarily directed towards improving a company’s competitive advantage and profitability in its present business or product line:
118
Horizontal Integration:Single-Industry Strategy
Focus resources Resources devoted to competing successfully in one area
‘Stick to the knitting’ Company stays focused on what it does best
Horizontal Integration: the process of acquiring or merging with industry competitors in an effort to achieve the competitive advantages that come with large scale and scope.
Staying inside a single industry allows a company to:
119
Benefits of Horizontal Integration
Profits and profitability increase when horizontal integration:
1. Lowers the cost structure• Creates increasing economies of scale• Reduces the duplication of resources between two companies
2. Increases product differentiation• Product bundling – broader range at single combined price• Total solution – saving customers time and money• Cross-selling – leveraging established customer relationships
3. Replicates the business model• In new market segments within same industry
4. Reduces industry rivalry• Eliminate excess capacity in an industry• Easier to implement tacit price coordination among rivals
5. Increases bargaining power • Increased market power over suppliers and buyers• Gain greater control
120
Problems with Horizontal Integration
A wealth of data suggests that the majority of mergers and acquisitions DO NOT create value and that many may actually DESTROY value.
Implementing a horizontal integration is not an easy task• Problems associated with merging very different company cultures• High management turnover in the acquired company when the acquisition
is a hostile one• Tendency of managers to overestimate the benefits to be had in the
merger• Tendency of managers to underestimate the problems involved in
merging their operations The merger may be blocked if merger is perceived to:
• Create a dominant competitor• Create too much industry consolidation• Have the potential for future abuse of market power
121
Vertical Integration: Entering New Industries
• Backward Vertical Integration• Company expands its operations into an industry that produces
inputs to the company’s products
• Forward Vertical Integration• Company expands into an industry that uses, distributes, or
sells the company’s products
• Full Integration• Company produces all of a particular input from its own
operations• Disposes of all of its completed products through its own outlets
• Taper Integration• In addition to company-owned suppliers, the company will also
use other suppliers for inputs or independent outlets in addition to company-owned outlets
Acquisitions or mergers of suppliers or customer businesses are vertical integrationsvertical integrations
Acquisitions or mergers of competing businesses are horizontal integrationshorizontal integrations
Textile producer
Shirt manufacturer
Clothing store
Textile producer
Shirt manufacturer
Clothing store
Vertical and Horizontal Integrations
123
Full and Taper Integration
124
A company pursues vertical integration to strengthen the business model of its core business or to improve its competitive position.
Increasing Profitability Through Vertical Integration
1. Facilitates investments in efficiency-enhancing specialized assets• Lowered cost structure or better differentiation.
2. Enhances or protects product quality• To strengthen its differentiation advantage through either forward or
backward integration
3. Results in improved scheduling• Makes it easier and more cost-effective to plan, coordinate, and
schedule the transfer of product within the value-added chain• Enables a company to respond better to changes in demand
125
Problems with Vertical Integration
Vertical integration can weaken a business model when: • Company-owned suppliers lack incentive to reduce costs• Changing demand or technology reduces ability to be competitive
Increased Cost Structure• Company-owned suppliers develop a higher cost structure than those of
the independent suppliers• Bureaucratic costs of solving transaction difficulties
Fast-changing Technology• Vertical integration may lock into old or inefficient technology• Prevent company from changing to a new technology that could strengthen
the business model Unpredictable Demand Creates risk in vertical integration investments
126
Strategic Outsourcing of Primary Value Creation
Functions
127
Benefits of Outsourcing
• Lower cost structure• The specialist company cost is less than what it would cost to
perform the activity internally
• Enhanced differentiation• The quality of the activity performed by the specialist is greater
than if the activity were performed by the company
• Focus on the core business• Distractions are removed
• The company can focus attention and resources on activities important for value creation and competitive advantage
Strategic outsourcing may be detrimental when there is: • Holdup – company becomes too dependent on specialist provider• Loss of information – company loses important customer contact or competitive information
128
Diversification Strategy is the company’s decision to enter one or more new industries (that are distinct from its established operations) to take advantage of its existing distinctive competencies and business model.
Corporate-Level Strategy of Diversification
Types of diversification: • Related diversification • Unrelated diversification
Methods to implement a diversification strategy:
• Internal new ventures• Acquisitions• Joint ventures
129
Increasing ProfitabilityThrough Diversification
• Transferring competencies among existing businesses
• Leveraging competencies to create new businesses
• Sharing resources to realize economies of scope
• Using product bundling• Managing rivalry by using diversification as a means in one or
more industries
• Exploiting general organizational competencies that enhance performance within all business units
A diversified company can create value by:
Managers often consider diversification when their company is generating free cash flow – with resources in excess of those needed to maintain competitive advantage.
130
Two Types of Diversification
Related diversificationEntry into a new business activity in a different industry that: • Is related to a company’s existing business activity or activities and• Has commonalities between one or more components of each activity’s
value chainBased on transferring and leveraging competencies, sharing resources, and bundling products
Unrelated diversificationEntry into industries that have no obvious connection to any of a company’s value chain activities in its present industry or industries
Based on using only general organizational competencies to increase profitability of each business unit
131
Disadvantages and Limits of Diversification
Changing Industry- and Firm-Specific Conditions
• Future success of this strategy is hard to predict.
• Over time, changing situations may require businesses to be divested.
Diversification for the Wrong Reasons
• Must have clear vision as to how value will be created.
• Extensive diversification tends to reduce rather than improve profitability.
Bureaucratic Costs of Diversification
• Costs are a function of the number of business units in a company’s portfolio, and the
• Extent to which coordination is required to gain the benefits.
Conditions that can make diversification disadvantageous:
132
Choosing a Strategy
Related diversification• When company’s competencies can be applied across a
greater number of industries and
• Company has superior capabilities to keep bureaucratic costs under control
Unrelated diversification• When functional competencies have few useful applications
across industries and
• Company has good organizational design skills to build distinctive competencies
The choice of strategy depends on a comparison of the benefits of each strategy versus the cost of pursuing it:
Firms may pursue both strategies simultaneously
133
Sony’s Web of Corporate-Level Strategy
134
Restructuring
Why restructure?• Diversification discount: investors see highly
diversified companies as less attractive • Complexity and lack of transparency in financial statements
• Too much diversification
• Diversification for the wrong reasons
• Response to failed acquisitions
• Innovations in strategic management have diminished the advantages of vertical integration or diversification
Restructuring is the process of divesting businesses and exiting industries to focus on core distinctive competencies in order to increase company profitability.
135
Divestiture and Liquidation Strategies
• Divestiture strategy
• Involves selling a firm or a major component of a firm
• Reasons for divestiture
• Partial mismatches between acquired firm and parent firm
• Corporate financial needs
• Government antitrust action
• Liquidation strategy
• Involves selling parts of a firm, usually for its tangible asset value and not as a going concern
BusinessStrategy
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Levels of Strategy-Making ina Single-Business Company
Business Strategy
Two-Way Influence
Functional Strategies
Operating Strategies
Business-Level Managers
OperatingManagers
Functional Managers
Two-Way Influence
138
Generic Strategies
Differentiation
Low-cost leadership
Focus
139
Evaluating and Choosing Business Strategies: Seeking Sustained
Competitive Advantage
• The two most prominent sources of competitive advantage can be found in the business’s cost structure and its ability to differentiate the business from competitors
• Businesses that have one or more resources /
capabilities that allow them to operate at a lower cost will consistently outperform their
competitosrs who do not have those capabilities
140
Evaluating Cost Leadership Opportunities
Business success built on cost leadership requires the business to be able to provide its product or service at a cost below what its competitors can achieve
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Business Level Strategies
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Bases of Competitive Advantage• Competitive strategy
• The bases for achieving competitive advantage • The bases for providing best value
• Porter’s generic strategies• Cost leadership• Differentiation • Focus
• Bowman and D’Aveni’s market facing strategies• Provide customer needs better or more effectively than
competitors• The strategy clock
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The Strategy Clock
Note: The strategy clock is adapted from the work of Cliff Bowman (see D. Faulkner and C. Bowman, The Essence of Competitive Strategy, Prentice Hall, 1995.) However, Bowman uses the dimenstion ‘Perceived Use Value’.
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The Strategy Clock
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
“No Frills” Strategy
• Commodity-like products or services• Price-sensitive customers• High buyer power and / or low switching
costs• Small number of providers with similar
market shares• Avoiding the major competitors
Low priceLow perceived product/service benefitsFocus on price-sensitive market segment
Low priceLow perceived product/service benefitsFocus on price-sensitive market segment
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Low Price Strategy
• Pitfalls of low price strategy
• Margin reduction (competitor reaction)• Inability to reinvest leading to loss of perceived
benefit of product
• Need a low cost base
• Low cost itself not a basis for advantage• Low cost achieved in ways that competitors
cannot match to give sustainable advantage
Lower price than competitorsMaintain similar product/service benefits
Lower price than competitorsMaintain similar product/service benefits
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Differentiation Strategies
• Success depends on• Identification of strategic customers and
knowing what they value• Knowing the competitors
• Narrow competitor base – focused differentiation• Wide competitor base – address bases of
differentiation valued by customers
Offering benefits different from competitorsWidely valued by buyersBetter products/services at same or higher price
Offering benefits different from competitorsWidely valued by buyersBetter products/services at same or higher price
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Hybrid Strategy
• Achieve greater volumes
• Clarity about activities on which differentiation can be built (core competences)• Reduce costs on other activities
• Entry strategy in market with established competitors
Simultaneously achieving differentiation and a price lower than competitors
Simultaneously achieving differentiation and a price lower than competitors
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Focused Differentiation
• Choice to be made between focused differentiation and broad differentiation if growth required
• Difficult when the focus strategy is only part of an organisation’s overall strategy
• Possible conflict with stakeholder expectations• New ventures start off focused, but need to grow• Market situation may change, reducing differences
between segments
High perceived product/service benefits to selected market segment (niche)Premium products, heavily branded
High perceived product/service benefits to selected market segment (niche)Premium products, heavily branded
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Sustaining Competitive Advantage
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Competitive Strategies in Hypercompetitive Conditions
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Competitive Strategies in Hypercompetitive Conditions
• Competitive advantage is temporary• Rapid imitation
• Not sustainable
• Competitive advantage relates to• Organisation’s ability to change
• Speed
• Flexibility
• Innovation
• Disruption of market
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The Value Chain
4-154
The Concept of aThe Concept of aCompany Value ChainCompany Value Chain
The Concept of aThe Concept of aCompany Value ChainCompany Value Chain
A company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service
A company’s value chain consists of a linked set of value-creating activities performed internally
The value chain contains two types of activities
Primary activities – where most ofthe value for customers is created
Support activities – facilitateperformance of the primary activities
4-155
RepresentativeRepresentativeCompany Value ChainCompany Value Chain
RepresentativeRepresentativeCompany Value ChainCompany Value Chain
4-156
Representative Value Chain Representative Value Chain for an Entire Organisationfor an Entire Organisation
Representative Value Chain Representative Value Chain for an Entire Organisationfor an Entire Organisation
4-157
Example: Value Chain Example: Value Chain ActivitiesActivities
Example: Value Chain Example: Value Chain ActivitiesActivities
Timber farming
Logging
Pulp mills
Papermaking
Distribution
Pulp & Paper Industry
4-158
Home Appliance Industry
Parts and components manufacture
Assembly
Wholesale distribution
Retail sales
Example: Value Chain Example: Value Chain ActivitiesActivities
Example: Value Chain Example: Value Chain ActivitiesActivities
A method of visually mapping a product's production path (materials and information) from "door to door".
Value stream is all the actions (both value added and non-value added) currently required to bring a product through the main flows essential to every product:
Value Stream Mapping
helps to visualize more than just the single-process level
helps see more than waste it helps see the sources of waste in your value stream
provides a common language for talking about manufacturing processes
ties together lean concepts and techniques
forms the basis of an implementation plan
shows the linkage between the information flow and the material flow
is much more useful than quantitative tools and layout diagrams that produce a tally of non-value added steps, lead time, distance traveled, the amount of inventory, and so on.
To diagnose strategic capability To understand how value is created or
lost in terms of the activities undertaken
The value chain describes the activities withinand around an organisation which togethercreate a product or service
The value chain describes the activities withinand around an organisation which togethercreate a product or service
Identifies clusters of activities providing particular benefit to customers
Highlights activities which are less efficient and which might be de-emphasised or outsourced
Requires managers to think about the role of such activities
Can be used to identify the cost and value of activities
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Characteristics of Characteristics of Value Chain AnalysisValue Chain Analysis
Characteristics of Characteristics of Value Chain AnalysisValue Chain Analysis
Combined costs of all activities in a company’s value chain define the company’s internal cost structure
Compares a firm’s costs activityby activity against costs of key rivals
From raw materials purchase to
Price paid by ultimate customer
Pinpoints which internal activities are asource of cost advantage or disadvantage
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An Activity Map
GlobalStrategy
167
Globalization Globalization refers to the strategy of
approaching worldwide markets with standardized products
Awareness of the strategic opportunities faced by global corporations and of the threats posed to them is important to planners in almost every domestic industry
Understanding the nuances
of competing in global markets is rapidly becoming a required competence of strategic managers
7-168
What Is the MotivationWhat Is the Motivationfor Competing for Competing Internationally?Internationally?
What Is the MotivationWhat Is the Motivationfor Competing for Competing Internationally?Internationally?
Gain access tonew customers
Capitalizeon core
competencies
Helpachieve
lower costsSpread
business risk across widermarket base
Obtain access to valuable natural
resources
169
Reasons for Going Global
PROACTIVE Additional resources Lowered costs Incentives New, expanded markets Exploitation of firm-
specific advantages Taxes Economies of scale Synergy Power and prestige Protect home market
REACTIVE Trade barriers International customers International
competition Regulations Chance
170
At the Start of Globalization
External and internal assessments are conducted before a firm enters global markets
External assessment involves careful examination of critical features of the global environment
Internal assessment involves identification of the basic strengths of a firm’s operations
7-171
How Markets Differ from How Markets Differ from Country to CountryCountry to Country
How Markets Differ from How Markets Differ from Country to CountryCountry to Country
Consumer tastes and preferences Consumer buying habits Market size and growth potential Distribution channels Driving forces Competitive pressures
One of the biggest concerns of companies competing in foreignmarkets is whether to customize their product offerings in each
different country market to match the tastes and preferences of local buyers or whether to offer a mostly standardized product worldwide.
172
Factors That Drive Global Companies
Global Management Team Global Strategy Global Operations and Products Global Technology and R&D Global Financing Global Marketing
173
Basic Entry Decisions
Which overseas markets to enter (WHERE)• Assessment of long-run profit potential• Balancing the benefits, costs, and risks associated with
doing business in a country
Timing of entry (WHEN)• First-mover advantages: preempt and build share• First-mover disadvantages: pioneering costs
Scale of Entry (HOW)• Entering on a large scale is a major strategic
commitment • Benefits and drawbacks of small-scale entry
174
The Choice of Entry Mode
1. Exporting Most manufacturing companies begin their global expansion as
exporters and later switch to one of the other modes.
2. Licensing A foreign licensee buys the rights to produce a company’s product
for a negotiated fee; licensee puts up most of the overseas capital.
3. Franchising Franchising is a specialized form of licensing. The franchiser not
only sells intangible property, but also insists that franchisee agrees to follow strict rules as to how it does business.
4. Joint Ventures Typically a 50/50 venture – a favored mode for entering a new market
5. Wholly-Owned Subsidiaries Parent company owns 100% of subsidiary’s stock – setup or acquire
175
Escalating Commitments to International Markets
176
Competitive Strategies for Firms
in Foreign Markets1. Niche Market Exporting
2. Licensing and Contract Manufacturing
3. Franchising
4. Joint Ventures
5. Foreign Branching
6. Equity Investment
7. Wholly Owned Subsidiary
177
Advantages and Disadvantages of Different Entry Modes
178
Four Basic Strategies
Companies typically choose among the four main global strategic postures when competing internationally.
The appropriateness of each strategy varies with the extent of pressures for cost reduction versus local responsiveness.
179
Choosing a Global Strategy
Standard Globalization Strategy• Reaping the cost reductions that come from economies of scale
and location economies
• Business model based on pursuing a low-cost strategy on a global scale
Makes the most sense when there are strong pressures for cost reduction and the demand for local responsiveness is minimal
Localization Strategy• Customizing the company’s goods or services so that thy
provide a good match to tastes and preferences in different national markets
Most appropriate when there are substantial differences across nations with regard to consumer tastes and preferences and where cost pressures are not too intense
180
Choosing a Global Strategy Transnational Strategy
• Difficult to pursue due to its conflicting demands
• Business model that simultaneously:Achieves low costs » Differentiates across markets Fosters a flow of skills between subsidiaries
Building an organization capable of supporting a transnational strategy is a complex and challenging task.
International Strategy• Multinational companies that sell products that serve universal
needs (minimal need to differentiate) and do not face significant competitors (low cost pressure).
In most international companies the head office retains tight control over marketing and product strategy.
StrategyImplementation
Existing Business Model
Mission , Vision, Values & Goals
External Analysis: Opportunities &
Threats
Internal Analysis: Strengths & Weaknesses
SWOT Strategic Choice
Business - Level Strategies
Functional – Level Strategies
Global Strategies
Corporate – Level Strategies
Governance and Ethics
Designing Organization Culture
Designing Organization Structure
Designing Organization
Controls
Components of Strategic Management Process
STRATEGY FORMULATION
STRATEGY IMPLEMENTATION
FE
ED
BA
CK
Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.
Strategy Formulation vs. Implementation
Strategy Formulation = stage of strategic management that involves planning and decision making that lead to the establishment of the organization’s goals and of a specific strategic plan
Strategy Implementation = stage of strategic management that involves the use of managerial and organizational tools to direct resources toward achieving strategic outcomes
Strategy ImplementationStrategy Implementation
• Designing organizational StructureDesigning organizational Structure
• Designing Control systemsDesigning Control systems Market and output controlsMarket and output controls Bureaucratic controlsBureaucratic controls Control through organizational cultureControl through organizational culture Rewards and incentivesRewards and incentives
• Matching Strategy, Structure, Matching Strategy, Structure, Culture and Controls Culture and Controls
Congruence (fit) among strategy, Congruence (fit) among strategy, structure, culture and controlsstructure, culture and controls
StructureStructure
ControlsControls
CultureCulture
Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.
Implementing Strategy Tools
LeadershipStructural design Information and control systemsHuman resources
Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.
Tools for Putting Strategy into Action
Environment
Organization
Strategy Performance
Leadership Persuasion Motivation Culture/values
Structural Design Organization Chart Teams CentralizationDecentralization, Facilities, task design
Human Resources Recruitment/selection Transfers/promotions Training Layoffs/recallsInformation and Control Systems
Pay, reward system Budget allocations Information systems Rules/procedures
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Why StructureWhy StructureFollows StrategyFollows StrategyWhy StructureWhy Structure
Follows StrategyFollows Strategy Changes in strategy typically require a new or modified
organization structure
A new strategy often involves different skills,different key activities, and different staffingand organizational requirements
Hence, a new strategy signals a need toreassess and often modify the organization structure
How work is structured is a means to an end –not an end in itself!
13-188
Tall and Flat StructuresTall and Flat StructuresTall and Flat StructuresTall and Flat Structures
13-189
Functional StructureFunctional StructureFunctional StructureFunctional Structure
13-190
Market StructureMarket StructureMarket StructureMarket Structure
13-191
Matrix StructureMatrix StructureMatrix StructureMatrix Structure
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Product-Team StructureProduct-Team StructureProduct-Team StructureProduct-Team Structure
BUILD A STRATEGY-BUILD A STRATEGY-
SUPPORTIVE SUPPORTIVE
CORPORATE CULTURECORPORATE CULTURE
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Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.
Corporate Culture
13-195
Features of the Features of the CorporateCorporate
Culture at Wal-MartCulture at Wal-Mart
Features of the Features of the CorporateCorporate
Culture at Wal-MartCulture at Wal-Mart Dedication to customer satisfaction
Zealous pursuit of low costs
Frugal operating practices
Strong work ethic
Ritualistic Saturday morning meetings
Executive commitment to Visit stores
Listen to customers
Solicit employees’ suggestions
13-196
Features of the Features of the CorporateCorporate
Culture at MicrosoftCulture at Microsoft
Features of the Features of the CorporateCorporate
Culture at MicrosoftCulture at Microsoft Long work hours of programmers
Emotional peaks and valleys inencountering and overcoming coding problems
Exhilaration of completing a complex program on schedule
Satisfaction of working on cutting-edge projects
Rewards of being part of a team responsiblefor a popular new software program
Tradition of competing aggressively
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Steps in Designing Steps in Designing an Effective an Effective
Control SystemControl System
Steps in Designing Steps in Designing an Effective an Effective
Control SystemControl System
13-198
Levels of Organizational Levels of Organizational ControlControl
Levels of Organizational Levels of Organizational ControlControl
Controls at each level should provide the basis on which managers at lower levels design their controls systems.
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Personal ControlManagers question and probe to better understand
subordinates.The result is more possibilities for learning to occur and
competencies to develop. Output Control
Set appropriate performance goals for each division, department, and employee, then measure actual performance relative to these goals.
Behavior ControlEstablish standardization, predictability, and accuracy by
creating a system of rules to direct actions and/or behaviors of divisions, functions, or individuals.
Types of Types of Strategic Control Strategic Control
Systems Systems
Types of Types of Strategic Control Strategic Control
Systems Systems
McKinsey 7-S framework McKinsey 7-S framework modelmodel
The 7-S framework of McKinsey is a The 7-S framework of McKinsey is a Value Based Management (VBM) Value Based Management (VBM) model that describes how one can model that describes how one can
holistically and effectively organize a holistically and effectively organize a company. Together these factors company. Together these factors
determine the way in which a determine the way in which a corporation operates.corporation operates.
McKinsey 7S Framework
Shared ValueShared Value
The interconnecting center of The interconnecting center of McKinsey's model is: Shared Values. McKinsey's model is: Shared Values. What does the organization stands for What does the organization stands for and what it believes in - Central and what it believes in - Central beliefs and attitudes.beliefs and attitudes.
StrategyStrategy
Plans for the allocation of a Plans for the allocation of a firm’s scarce resources, over firm’s scarce resources, over time, to reach identified time, to reach identified goals, Environment, goals, Environment, competition, customerscompetition, customers
StructureStructure
The way the organization's units The way the organization's units relate to each other: centralized, relate to each other: centralized, functional divisions (top-down); functional divisions (top-down); decentralized (the trend in larger decentralized (the trend in larger organizations); matrix, network, organizations); matrix, network, holding, etc.holding, etc.
SystemSystem
The procedures, processes and The procedures, processes and routines that characterize how routines that characterize how important work is to be done: important work is to be done: financial systems; hiring, promotion financial systems; hiring, promotion and performance appraisal systems; and performance appraisal systems; information systemsinformation systems
StaffStaff
Numbers and types of personnel Numbers and types of personnel within the organizationwithin the organization
StyleStyle
Cultural behaviour of the organization Cultural behaviour of the organization and how key managers behave in and how key managers behave in achieving the organization’s goals - achieving the organization’s goals - Management Styles.Management Styles.
SkillsSkills
Distinctive capabilities of personnel Distinctive capabilities of personnel or of the organization as a whole - or of the organization as a whole - Core Competences.Core Competences.
Managing Strategic ChangeManaging Strategic Change
The only constant is change.The only constant is change.
Success requires adapting strategy and Success requires adapting strategy and structure to a changing world.structure to a changing world.
The The feedback loopfeedback loop in in strategic planning.strategic planning. CorporateCorporate
FunctionalFunctional
BusinessBusinessOperationalOperational
Key Steps to Implement Key Steps to Implement Strategic ChangeStrategic Change• Sense the need for strategic changeSense the need for strategic change
• Build awareness of the need to change and Build awareness of the need to change and learnlearn
• Foster debateFoster debate
• Create consensusCreate consensus
• Assign responsibilityAssign responsibility
• Allocate resourcesAllocate resources
• Act quicklyAct quickly