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STRATEGIC MANAGEMENT
1. Basic concepts
Hungarian competitiveness
Prof. Gbor PAPANEK
www.ektf.hu/
~
papanek
papanek@gki.hu
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Introduction 1.
The subject of strategic management is: how to
manage economic actions. I will present principles
and methods of economic decision making. This
topic is general, which is important for everybody,
e.g. for businessmen, and economists interested in
regional or national economic policy.
In addition I will mention some characteristics of the
EU and Hungarian position.
On the slides the most important words, statements
are written in red, the others in black, but some
additional information in blue colour (figure).
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Source: www.gt2006.freeblog.hu/albumunk/argentina - Iguau
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Introduction 2.
The titles of my presentations during the
semester:
Basic concepts
Techniques of strategic planning 1 -2
Strategy implementation
Financial strategies
Innovation management
Regional development strategies
Economic policy
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Introduction 3. (definitions)
Economy is a system of goods, persons, organisations
which operates to fulfil peoples needs.
Main economic actors are households, companies and the
government (figure).
Companies are endowed with the resources used in the
production from the families and pay for them. They
produce products and sell these to the families. The
state controls these processes collecting taxes and
giving subventions - and regulating the markets.
Economics: Scientific analysis of human behaviour, the
objective of which is the use of the scarce resources
for the provision of households.
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Source: own
figure based
on many
publications
Simple system with a feedback






War system






Economic system
basic process
army A
army B
command A
measuring
regulation
command B
regulator
materials
products
military operation
war equipment
information
families firms
state
manpower,
money
wages,
products
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Introduction 3.
Firm (company or enterprise): independent business
organisation.
Creation of a firm can be rational, if transaction costs of
the given business are smaller in case, if the work is
organised in the frame of one enterprise, than with the
help of commercial connections of independent firms
(R. Coase).
The life story of a firm can be described by its life cycle,
which is similar to the well-known product life cycle
(figure).
We can distinguish small, medium- sized enterprises and
large corporations (table).
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Life cycle of a firm


money
time
technological
and market
uncertainty

cash flow
revenue
present value
of cash flow
time of return
1 pre-foundation 2 market entry 3 growth 4 maturity 5 decline
6 renewal
Source:
own figure
based on
many
publications
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Small-, medium-sized enterprises and large
companies
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Micro Small Medium
Criteria size enterprises
Number of employees <10 <50 <250
Revenue, million euro
Total assets/equity
<2
<2
<10
<10
<50
<43
Autonomy There is no institutions which has
more than 25 % participation in the
firms capital

SME: small- and medium-sized enterprise
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Source: www.gt2006.freeblog.hu/albumunk/bolivia - La Paz
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Introduction 4.
The legal forms of firms and their liability.
Owners liability in the corporations with legal
entity is limited, the owners are liable for the
actions of their enterprise to the extent of
their ownership only.
Owners liability in partnerships without legal
entity and in the private entrepreneurships
(sole proprietors) is unlimited, the owners are
liable to the extent of all their property.
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Introduction 5.
Two main methodical approaches to research are:
Induction; it is a process of reasoning in which
some facts (observations) prove the validity of a
conclusion.
Deduction; it is a process of reasoning in which a
conclusion follows necessarily from the premises
presented.
We have to use both type of methods, if we prove
a statement.
Literature: Babbie, E.: The practice of social research.
Wadsworth P. Co. 1989.
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M
Management is a set of activities directed at the
efficient and effective utilization of resources
in the pursuit of one of more goals.
In management, skills are always important, but
often the successful manager has to be an
artist as well.
Functions of management are planning,
leading, organisation, coordination, control (H.
Fayol - citations).
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Some views:
To manage is to forecast and plan, to organise,
to command, to coordinate and to control Fayol
1916
Management is a social process the process
consists of planning, control, coordination and
motivation Brech 1957
The five essential managerial functions are:
planning, organising, staffing, directing and
leading and controlling Koontz-ODonnel 1976
Source: presentation of Mr. B. Borsi
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Todays in strategic management one of the most
cited author is Michael PORTER. He put
competition in the centre of his analysis. But he
mentioned that in many cases the co-operation
can be important as well.
The oldest manual about the management knowledge
is the Panchatantra (an old Indian book from the II.
century B. C.). It says that the King has to be skilled first
of all in acquisition and loss of friends, war, loss of
properties, and they have to avoid rash actions. All
these are important even todays market competition.
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Plans 1.
Planning is the first function of the management.
A plan is a document which defines the goals of an
organisation (or a person) and the way of their
fulfilment.
The main types of enterprises plans are the mission, the
strategy and the tactics.
The mission is a brief description of the reason for the
firms existence. It is always fixed by the owners.
Example: B. Gates mission was to give personal
computer to all US families.
The strategy formulates the broad goals, and the tools of
realisation of an organisation in an extended time frame.
The tactics focus the people and actions which implement
the strategy.
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The most important strategy concepts:
Vision: what does the company see for the future?
Mission: why does the company exist?
Strategy: covers the definition of objectives as well as
the methods and tools to help reaching the objectives.
Objective: they say, what does the company want to
implement in a given time?
Tools: the way defined to fulfil the mission and
objectives, at the end of which the vision becomes
reality.
Strategic action: a main task derived from strategic
objectives often formulated as projects.
Source: presentation of Mr. B. Borsi

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The interdependence of different plans, especially
the feedback is always important (figure).
Example:
The late 1800s a US railway co. said, that its mission
is the transport of persons and commodities by
train. It was successful for a long time.
In the 1950s the Co. went bankrupt. The analysis
stated, that the cause was leaving the mission
unchanged after the general use of automobiles.
The failure could have been avoided, if the
mission changed to include transport by all
transport vehicles.
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Interdependence of different plans
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Source: own figure based on many publications
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Plans 2.
In small enterprises decision making and other
tasks of planning are the duty of the owner(s)
and (if there is) of the top manager(s). The
development of the mission and the strategy
can be informal (it is not obligatory to write
them). The only plan which has to be formal
can be the business plan.
In small firms the business plan projects the
revenues and costs of a given period, or
program.
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In all big companies, there is a division of labour
between the top manager (the boss) and the
managers of functional departments or divisions.
Subsidiarity is an old, but EU conform principle of
this division of labour, in accordance of which
the decisions must be made on the specific level,
where the potential decision makers have the
maximum information.
The organisational form of a large companys
management can be functional, divisional or
matrix type (figure).
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Functional type organisation of a firm
Divisional organisation


Matrix type organisation

top management
functional departments
factory 1. factory 2. factory 3.
top management
product manager 1.
functional specialists
factories
product manager 2.
factories
functional specialists
top management
functional
department 1.
Product manager 1.
factories
Product manager 2.
factories
functional
department 2.
Source: own
figure based on
many
publications
In all type of management the main goals are
always indicated by the boss, the details are
developed by the departments (divisions). Their
harmonisation process is a sort of bargaining,
the boss has to take the principle of subsidiarty,
the other managers the responsibility of the boss
into consideration.

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Competitiveness of the EU
especially Hungary
Nowadays the most competitive regions of the World are
USA, Japan and, in spite of their backwardness, China
and India.
In Europe the most developed economic space is the blue
banana (figure). But competitiveness (GDP per capita)
of the majority of EU-15 countries is weak (table).
Example: Europe does not have good market positions in
the nuclear, military or IT industries.
Central Europe have always fighted, and is still fighting for
catching-up. Actually Hungary is not successful (in spite
of the high machinery production and export) .
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The blue banana
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GDP per capita, USD
Source: IMD (Institute for Management Development): World Competitiveness Yearbook
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In 2009 per capita GDP was 14 900 Euros in Hungary (at the official
exchange rate). It is very low in comparison with the West-Europeans,
but higher than in the East.
Distribution of the gross value added by
industries, %
2009
Agriculture, hunting, forestry, fishing 3
Mining, manufacturing, gas etc. supply 25
Constructions 5
Services 67
Total 100
Source: Hungary in statistics. www.ksh.hu

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Foreign trade of products and services, 2009
(Million euro)

Import Export Balance
Products
Food, drinks, tobacco 3 072 4 301 1 229
Raw materials 933 1 308 374
Energy 6 171 1 635 4 536
Manufactured products 17 673 16 079 1 594
Machines, transportation facilities 27 669 36 174 8 505
Total 55 518 59 497 3 979

Services
Tourism 2 608 4 080 1 472
Transport 1 780 2 511 731
Business services 6 769 6 164 605
Services of government 154 97 57
Total 11 311 12 852 1 541
Source: Hungary in statistics. www.ksh.hu
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Thank you for your attention!
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