STRATEGIC MANAGEMENT COURSE: BBA 410

LECTURE 1

  1. COURSE OBJECTIVES

This course should prepare students on how to:

1. Evaluate the environment in which they are operating.

2.Develop and analyze strategic alternatives

3. Prepare strategic plans.

4. Implement the strategic plans and decisions

2.COURSE MODULE:Available in soft and hard copies. Students to ensure they get a copy.

3.COURSE SYLLABUS

1. Introduction to the Discipline of Strategic Management.

- Evolution of strategic management

- Major elements of strategic management

- Strategic leadership and decision-making.

- The characteristics of successful organisations

2. The Process and Practice of Strategic Management

- Levels of strategic management

- The strategic management process.

- Elements of the strategic management.

- Organisational planning process

3. Analysing the General Environment.

- The importance of environmental influences

- An analysis of the total business environment, the nature and consequences of industrial

and the technological changes.

- The economy

- Technology

- Social factors.

- Political and legal considerations

- The effect of market and industry structure.

- The product and market life circle.

4. Developing Strategic Options.

- Strategic decision making.

- Creating sustainable advantages.

- Evaluating the strategic situations.

- Developing and evaluating strategic alternatives

5. Developing the Strategic Plan

- Strategic decision support system.

- Strategic planning systems.

- Planning under risk and uncertainty

- Putting it all together

6. Strategic Implementation and Control

- Implementing strategic planning process

- Implementing strategic decisions

- Implementing strategic plans

- Strategy and structure relationships

- Social and political influence

- Strategic control

4.COURSE ASSESSMENT

The course grading shall have the following two components:

1. Continuous Assessment (CA = 40 %)

1.1. Assignment (1) – 10 %

1.2. Class Test (1) - 10 %

1.3. Mid Semester Examination (1) – 20%

2. Final Examination (1) - 60 %

REFERENCES

1. Arthur Thompson, “ Strategic Management” , McGraw-Hill Education, 2002

2. Ralph D. Stacey, “Strategic Management and Organisational Dynamics: The Challenge of Complexity”, FT Prentice Hall, 2002

3. Thompson, Strickland, “ Readings in Strategic Management”, McGraw-Hill Education (ISE Editions), 2000

4. David Hussey, “Strategic Management: From Today to Implementation”, Butterworth-Heinemann, 1998

5. Robert Burgelman, Modesto A. Maidique, “Strategic Management of Technology and Innovation”, McGraw- Hill Education (ISE Editions), 2003

6. Peter L. Wright, “Strategic Management: Concepts and Cases (International Edition)”, US Imports & PHIPEs, 2002

7. Paul Finlay, “Art and Science of Strategic Management”, FT Prentice Hall, 2000

8. Michael A. Hitt, et al, “The Blackwell Handbook of Strategic Management (Blackwell Handbooks in Management)”, Blackwell Publishers, 2001

9. Hugh Macmillan, Mahen Tampoe, “Strategic Management: Process, Content and Implementation”, Oxford University Press, 2000

10. Michael J. Stahl, “Cases in Strategic Management: Instructor's Manual”, Blackwell Publishers, 1999

11. Jon Sutherland, Diane Canwell, “Key Concepts in Strategic Management (Palgrave Key Concepts), Palgrave Macmillan, 2004

12.Lynch Richard, ‘‘Corporate Strategy’’, 2nd Edition, Financial Times – Prentice Hall, 2000

------

Available in the UNILUS Library

1. De wit, Bob and Meyer, Ron. (2004). Strategy – Process, Content, Context. 3rd Edition, Thomson Learning, London, UK.

2.Hill W.L. Jones G.R. (2001). Strategic Management Theory – An Integrated Approach. Houghton Mifflin Company, Boston, MA, U.S.A.

3.Johnson G., Scholes, K.. Whittington, R., (2008). Exploring Corporate Strategy – Text and Cases. 8th Edition, Dorling Kindersley (India) Pvt. Ltd., New Dheli, India.

4. Mintzberg H., Lampel J., Quinn J.B., Ghoshal S., (2003). The Strategy Process – Concepts, Contexts & Cases. 4th Edition. Pearson Prentice Hall.

Further References

1.Porter, M.E., (2004). Competitive Strategy: Techniques for Analyzing Industries and Competitors. 1st Free Press Export Edition, Free Press, New York, USA.

CHAPTER 1

STRATEGIC MANAGEMENT

1 Introduction to the Discipline of Strategic Management.

Class Exercise: - Definition of:

  • Strategy :Plan of action for achieving organizational objectives (long term; advantage; environment)
  • Strategic Management!!....

‘‘Strategic Management is that set of managerial decisions and actions that determines the long-run performance of a corporation.’’

Also involves the monitoring an evaluation of external opportunities and threats in light of a corporation’s internal strengths and weaknesses.

1.1 The Evolution of Strategic Management

Originally called business policy.

Business policy, in contrast, has a general management orientation and tends primarily to look inward with its concern for properly integrating the corporation’s many functional activities.

Strategic management, as a field of study, incorporates the integrative concerns of businesspolicywith a heavier environmental and strategic emphasis. Therefore, strategic management has tended to replace business policy as the preferred name of the field.

1.1.1The Historical Context of Strategy

Until the late 19th century, formal strategic management did not exist.

  • Organizations that were not owned by the nation state were too small to be considered as corporations.
  • However, small artisan factories needed strategies to survive and prosper against competitors.

North America, Europe and Japan had begun to industrialize by the end of the 20th century. Other countries mainly supplied commodities and raw materials to world markets.

Strategic management, which is principally associated with increased industrialization, first developed in the industrialized countries.

Strategic Management in the early 20th Century

USA and Europe, industry managers (rather than academics) began to explore and define the management task.

F.W. Taylor (USA) and Henry Fayol (France) were both industrialists who researched and wrote on the issue.

Henry Ford experimented with producing more cheaply and satisfy the growing market demand. Between 1908 – 1915, he developed strategies some of which are still recognize today

Early Strategies Still Recognized Today

  1. Henry Ford: 1908-1915
  • Innovative technology
  • Replacement of men by machines
  • Search for new quality standards
  • Constant cost-cutting through factory re-design
  • Passing on the cost reductions in the form of reduced prices for the model T car
  1. Alfred Sloan & Co: 1920 – 1935:
  • Car models tailored for specific market niches
  • Rapid model changes
  • Structured management teams and reporting structures
  • Separation of day-to-day management from the task of devising longer-term strategy

Henry Ford did not believe in major model variations and market segmentation, unlike his great rival from the 1920s, General Motors headed by Alfred Sloan. Nor did Ford believe in the importance of middle and senior management. He actually sacked many of his senior managers and ultimately left his company in real difficulties when he died. Hence, his rival in the 1920s and beyond, General Motors, was ultimately more successful with other strategies that still exist today.

First World War (1914 – 1918)

After the First World War came the great economic depression of the 1930s. This brought the need for a new order in international currency and, just as importantly, the desire for larger companies to gain economies of scale. However, much of this was confined to North America and competitive strategy itself was still in its infancy.

Strategic Management in the mid-20th Century

World War II: Demand for specialist military equipment,

Strategic Game Theory grew from British naval tactics when hunting for German U-boats.

North American Industrial power grew rapidly.

Strategic Management Development began in earnest accompanied by reconstruction of industry across Europe and the beginnings of the Asian development period (Japan).

Writers such as Ansoff developed strategic management concepts that would continue into the 1970s.

The Prescriptive Strategic Management Concept was developed (1960s)

The Emergent Strategic Management Concept was also developed (1980s)

The same period witnessed two strategically important developments:

1. The accelerated rate of change: - Strategic management provided a way of taking advantage of new opportunities.

2. The greater spread of wealth: -Strategic management needed to find ways of identifying the opportunities provided by the spread of increasing wealth, especially in Europe.

Strategic Management into the 21st Century

Major oil price rises due to increased world demand for energy

Middle Eastern countries formed an oil price cartel.

Past 20 years have seen further developments described briefly in Table 2.1.

OTHER TRENDS

  • Free market competition.
  • Increasing importance of Asia/Pacific markets.
  • Globalization.
  • Need to Empower and Involve employees in strategic decisions.
  • Greater speed of technical change and the rise of new forms of communication.
  • Increased emphasis on business ethics led to the collapse of some companies for ethical reasons.

e.g. Enron - USA

Developmental Phases of Strategic Management

Initially strategic management was of most use to large corporations operating in multiple industries.

Today’s professional managers (in all organizations) have adopted strategic management to keep their companies competitive in an increasingly volatile environment.

Phase 1:Basic Functional Planning:

Purpose:Annual Budgets & Projects

Planning horizon: 1 years

Phase 2:Forecast-Based Planning

Purpose/Nature:To augment annual plans and forecast future performance. Adhoc & very political.

Planning Horizon:3-5 Years

Phase 3.Externally-Oriented Planning (Strategic Planning)

Purpose/Nature:Responsiveness to changing markets & competition. Planning Department established. External Consultants engaged. Minimum input from lower levels.

Planning Horizon:5 Years

Phase 4.Strategic Management (proper)

Purpose/Nature:Seeks input & participation from many org. levels & work groups. Integrated plans incorporating evaluation and control. Planning no longer a top down process.

Planning Horizon:5 years

Benefits of Strategic Management

Clearer sense of strategic vision for the firm

Sharper focus on what is strategically important

Improved understanding of a rapidly changing environment

A Few Critical (Strategic) Questions:

1. Where is the organization now? (Not where do we hope it is!)

2. If no changes are made, where will the organization be in 1 year? 2 years? 5 years? 10 years? Are the answers acceptable?

3. If the answers are not acceptable, what specific actions should management undertake? What are the risks and benefits involved?

LECTURE 2:

1.2 MAJOR ELEMENTS OF STRATEGIC MANAGEMENT

Strategic management includes the following elements:

  1. Environmental scanning (Internal & External)
  2. Strategy formulation (Strategic or long-range planning)
  3. Strategy implementation
  4. Evaluation and control

Fig. 1.1: Basic Elements of the Strategic Management Process

1.2.1ENVIRONMENTAL SCANNING

Monitoring,

Evaluation and

Dissemination of information from the internal & External Environment to Key people in the Corp.

Purpose: Identify strategic factors – Those elements that will determine the future of the corporation. Tool: SWOT Analysis.

(SWOT = Strengths, Weaknesses, Opportunities and Threats)

SWOT ANALYSIS

  1. External Environment – Threats & Opportunities
  2. Internal Environment – Strengths & Weaknesses

THE EXTERNAL ENVIRONMENT – (Threats and Opportunities)

Consists of variables (opportunities and threats) that are outside the organization and NOT within the short-run control of management. These variables form the Context within which the organization exists.

Key Environmental Variables:

General Forcesand Trends within society (economic, technological, political-legal, socio-cultural forces)

Specific Factors to the Organization’s/ Industry (shareholders, suppliers, employees/labour unions, competitors, trade associations, communities, creditors, customers, special interest groups, governments).

THE INTERNAL ENVIRONMENT – (Strengths and Weaknesses)

Consists of variables (Strengths and Weaknesses) that are within the organization but not within the short-run control of management. These variables form the context in which work is done.

Key Internal variables:

Structure

Culture and

Resources.

Key strengths form a set of Core Competencies that the corporation can use to gain competitiveadvantage.

Core Competency = Organization’s Central Value- Creating Capability.

1.2.2STRATEGY FORMULATION

Development of long-range plans for the effective management of opportunities and threats viz corporate strengths and weaknesses.

Includes defining the CorporateMission, Vision &Objectives; developing strategies, and setting policy guidelines.

Mission:

Mission is the purpose or reason for the organization’s existence. Spells out what the Organization is providing to society in terms of Services or Products.

 Fundamental, Unique Purpose forexistence

Scope of Operations viz Products/Services & Markets Served.

Philosophy about how it does business.

Vision

A vision or strategic intent is the desired future state of the Organization. It’s an aspiration that focuses the energies of the CEO and other strategists.

Composite (Mission/Vision) Statement

Tells who we are and what we do as well as what we’d like to become.

A mission may be defined narrowly or broadly in scope.

Objectives

Results of planned activity

State what is to be accomplished and when

Quantified or Measurable.

The achievement of corporate objectives should result in the fulfillment of a corporation’s mission.

Example: Increase profits 10% over last year.

Objectives Areas:

  • Profitability (e.g. net profits)
  • Efficiency (e.g. low costs, etc.)
  • Growth (e.g. increase in total assets, sales, etc.)
  • Shareholder wealth (dividends plus stock price appreciation)
  • Utilization of resources ( e.g. return on investment or equity)
  • Reputation (being considered a “top” firm)
  • Contributions to employees (employment security, wages, diversity)
  • Contributions to society (taxes paid, participation in charities, providing a needed product or service)
  • Market leadership (market share)
  • Technological leadership (innovations, creativity)
  • Survival (avoiding bankruptcy)
  • Personal needs of top management (using the firm for personal purposes, such as providing jobs for relatives)

Goals

In contrast to an objective, a goal is an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and no time criteria for completion.

Example: “Increased profitability” Does not state how much or when .

Fig. 1.2: Strategic Management Model

Strategies:

A strategy is a comprehensive master plan stating how the organization will achieve its mission and objectives. It maximizes competitive advantages and minimizes dis-advantages

THE HIERARCHY OF STRATEGIES

A hierarchy of strategy is the grouping of strategy types by levelintheorganization.

Fig:Nesting of Strategies:1. Operational;2.Functional; 3. Business; 4. Corporate

This hierarchy of strategy is a nesting of one strategy within another so that they complement and support one another.

Operational strategies support functional strategies

Functional strategies support business strategies

Business strategies Support Corporate Strategies

The Four (4) Levels of Strategy:

1. Corporate Strategy

Describes a company’s overall direction in terms of its general attitude toward growth and the management of its various businesses and products.

(Corporate strategies typically fit within the 3 main categories of stability, growth and retrenchment.)

2. Business Level Strategy

Occurs at the business unitor product level.

Concerned with the firm’s competitive position in the specific industry or market segment served by that business unit.

(Business strategies may fit within the 2 overall categories of Competitive or Cooperative strategies. E.g. Differentiation, CostLeadership and Focus; Alliances)

3. Functional Strategy

Approach taken by a functional area (e.g. HR) to achieve corporate and business unit objectives by maximizing resource productivity.

Concerned with developing and nurturing a distinctive competence to provide a competitive advantage.

Examples: R&D functional strategies are

  • Technological followership (imitate the products of other companies) and
  • Technological leadership (pioneer an innovation).

4. Operational Strategy

Refers to how departmental and supervisory level managers intend to carry out the day to day, fine details of functional area support strategies. The Logic of the operating-level strategy flows directly from a higher order strategic requirement!!

(e.g Stores Unit within the Supply Department or Training within the Human Resources Dept.)

Notes

Business firms may use all 4 types of strategy simultaneously.

Some Firms use Implicit and not Stated Strategies

You can discern a firm’s strategy by observing management behavior not from mere statements!!!

Policies

Broad guidelines for decision making

Link the formulation of strategy with its implementation.

Companies use policies to make sure that employees throughout the firm make decisions and take actions that support the firm’s mission, objectives and strategies.

Examples:

  • Maytag Corporation: Maytag will not approve any cost reduction proposal if it reduces product quality in any way. (This policy supports Maytag’s strategy for Maytag brands to compete on quality rather than price).
  • 3M: Researchers should spend 15% of their time working on something other than their primary project. (This supports 3M’s strong product development strategy)
  • Intel: Cannibalize your product line (undercut the sales of your current products) with better products before a competitor does it to you. (This supports Intel’s objective of market leadership).
  • General Electric: GE must be number 1 or 2 wherever it competes. (This supports GE’s objective to be number 1 in market capitalization).
  • Nordstrom: A “no questions asked” merchandise return policy, because the customer is always right. (This supports Nordstrom’s competitive strategy of differentiation through excellent service)

Policies like these provide clear guidance to managers throughout the organization.

1.2.3STRATEGY IMPLEMENTATION

Process by which strategies and policies are put into action

Tools - programs, budgets and procedures.

Might involve changes within the overall culture, structure and/or management system of the entire organization.

Typically conducted by middle and lower level managers with review by top management.

Often involves day-to-day decisions in resource allocation (Sometimes referred to as operational planning)

Programs

A program is a statement of the activities or steps needed to accomplish a single-use plan. It makes the strategy action oriented. It may involve restructuring the organization, changing the company’s internal culture, or beginning a new research effort.

Standing Plans: (eg Policies) Used frequently & focus on organizational situations that occur repeatedly.

Single User Plans: (eg Budgets) Used only once, or couple of times & focus on unique or rare situations within the organization.