Business Policy

Strategy Formulation

Topic 1: The Concept of Strategy and the Strategic Management Process

Lecture Plan

• What is a strategy?

• The strategic management process

• Why strategic management is an ongoing process

• Who performs the tasks of SM?

• Benefits of a strategic approach

What is a strategy?

• ‘determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals’’

» Chandler

• ‘a commitment to undertake one set of actions rather than another’

» Oster

What is a Strategy? (2)

• ‘...the “game plan” management has for positioning the company... entails choice among alternatives and signals organisational commitment to specific markets, competitive approaches, and ways of operating.’

» Thomson and Strickland

The strategy pyramid

Influence

Operating

Function

Business

Corporate

•Uniting the strategy-making effort through vertical and horizontal linkages.•Co-ordination through mutually reinforcing vision, objectives & strategies.

Different Levels of Strategy

• Corporate - what business?

• Business - how to compete in each business

• Functional - in support of business level

The Strategic Management Process

Identifycurrentmission,objectives& strategies

AnalyzeEnvironment

AnalyzeResources

Identifyopps / threats

Identify strengths &weaknesses

FormulateStrategies

ImplementStrategies

EvaluateResults

SWOT ANALYSIS

‘Management’, Robbins, S. & Coultar, M. 1996p. 259

Strategy Making - Process or Event?

• Strategy making is an ongoing process

• Boundaries between tasks:conceptual not real

• Managers have many other responsibilities

• Crafting/ implementing happens erratically

Intended and Adaptive Strategy

‘strategy is a combination of planned actions and on-the-spot adaptive reactions to freshly developing industry and competitive events.’

Respond to external/internal environment

Emergent Strategy

Who Performs the five tasks?

• CEO and other managers

• Strategic planners

• Board of directors

The Three Strategy Making Tasks

• Develop a strategic vision/ business mission

• Set objectives

• Craft a strategy

‘Chesire Puss’ she (Alice) began ... ‘Would you please tell me which way I ought to go from here’

‘That depends on where you want to get to,’ said the cat.

Lewis Carroll

‘If you don’t know where you’re going,any old road will take you there’.

Anonymous

Defines the current boundaries

Defines the business position

-’Who are we?’

- ‘What do we do?’Mission

Present

What Business are you in: Coca Cola

– soft drinks? Competition is Pepsi, Finches

– beverages? Competition is tea, coffee, softdrinks

– thirst -quenching?

Competition is water & all liquids!

Broad / Narrow Business Definition

Broad NarrowBeverages Fizzy drinksChildren’s entertainment Toys for toddlersFurniture WaterbedsTravel River cruises in Egypt

Objectives

•Strategic vs. Financial?

•Long range vs. short range?

•Challenging but achievable

•Measurable

Strategic vs. financial objectives?

• Strategic– focus is on competitors

• eg. becoming the top company in the industry

• Financial – focus is on financial performance

• eg. acceptable profit margin/ ROI

• Both are neccessary– company must survive in both short and

long term

Long vs. Short term?

• Long term forces– early action

– long term implications considered

• Short term encourages– speedy progress

Challenging but Achievable

• objectives must be realistic

• but should stretch• funds/ resources must

be available to execute the strategy

Measurable

• Objectives must be measureable– eg. growth in market share

of 5%

• Deadlines must be set– eg. by December next

‘You cannot manage what you cannot measure’

Objectives needed at all levels

• Parts supporting the whole

• Top-down objective-setting

- cohesion

- leadership

Approaches to performing the strategy making tasks

– Master strategist: manager is chief architect– Delegate to others– Collaborative approach– Champion approach

Factors that shape strategy

Craft a Strategy

Craft a Strategy

IndustryAttractive-ness

Societypoliticalregulatory

Opportunitythreat

Company’s strategic situation

Strengthsweakness

Managervalues /ambitions

Culture

EvaluationChoice

External

Internal

Societal, Political, Regulatory Conditions

• Limit the strategic actions that a company can or should take

• May cause company to change strategy– anti-smoking lobby (direct mkg/advertising)– lead-free petrol (eg Pura)– recycling

Industry Attractiveness

• Strategy must be matched to industry and competitive conditions eg.– technology shift– change in cost structure of industry

Market Opportunities and Threats

• Be open to opportunities

• Aim at capturing best growth opportunities

• Defend against threats to well-being and future performance

Organisational Strengths and Weaknesses

• Strategy must be well-matched to the company’s strengths– strategy should be grounded in what company

is good at doing– perilous to depend on what it’s not good at

Manager’s Values, Beliefs and Ambitions

• Management play a pivotal role

• Strong leadership builds commitment

• Management communication - ‘buy-in’

Strategy formulation: deciding what to do

• what you might do: opportunity

• what you can do: resources

• what you’d like to do: values/

ambitions

• what you ought to do: ethics

Tests for a good strategy

• Goodness of fit test– matches well the company’s situation

• internal

• external

• Competitive advantage test– leads to sustainable competitive advantage

• Performance test– leads to superior performance

• profitability

• long term business/ market position strength

Benefits of a Strategic Approach

•Direction

•Adaptable / in-tune with environment

•Basis for budget/resource allocation

•Unifies decisions across organisation

•Encourages pro-active management

•Requires strategic thinking rather than gut-feel/drift