Business Policy, Planning and Strategy

Prof. L.Raghavan Iyer.

Contents during the session

Meaning. Objective of Strategic Management Importance of Strategic Management. Origin Strategic Management Process. Vision, Mission, Goals and Objectives.

What is Strategic Management?

The set of decisions and actions that result in the formulation and implementation of plans designed to achieve a companys objectives.
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Multi-Disciplinary
Integrative and inter-workings of finance, accounting, marketing, research and development, human resources, operations, information management, These are the functional specialties that contribute to the general management of the firm.

You have studied these fundamentals separately.

Strategic Management
Strategy: The unifying theme that gives coherence and direction to the decisions of an organization Strategic Management: Consisting of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages. Or, the Strategic Management Process is: The full set of commitments, decisions, and actions required for a firm to create value and earn aboveaverage returns. (Hitt, Hoskinson, & Ireland, 2004, p. 4)
Strategic Management basically seeks to answer the question:

How and why do some firms outperform others?

Other Definitions of Strategy

Oxford Dictionary: The art of war, especially the planning of movements of troops and ships etc., into favorable positions; plan of action or policy in business or politics etc. Chester I. Barnard: Strategy is intended to focus on the interdependence of the adversaries decisions and on their expectations about each others behavior. Alfred D. Chandler Jr.: The determination of the long run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Kenneth Andrews: Strategy is the pattern of objectives, purposes or goals and the major policies and plans for achieving these goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be.

The Origins of Strategy

Know the other and know yourself: Triumph without peril. Know Nature and know the Situation: Triumph completely.
- Sun Tzu (~360 B.C.)

Business strategy is a relatively young field of study but its roots go back to early military strategy. Strategy comes from the Greek word strategos, which is formed from stratos, meaning army, and ag, meaning to lead. Carl von Clausewitz wrote in the early 1800s that tactics[involve] the use of armed forces in the engagement, strategy [is] the use of engagements for the objects of war.

More Recent Historical Development of Business Strategy

Not until very large companies with the ability to influence the competitive environment within their industries did strategic thinking in the business world begin to be articulated.
Alfred Sloan, CEO of GM, 1923 1946 - One of the first to analyze competition, Ford, and devise a strategic plan based on its strengths and weaknesses. Chester Barnard, Senior Executive of New Jersey Bell, 1930s - Argued managers should pay attention to strategic factors which depend on personal or organizational action.

Wartime (WWI and WWII) efforts also impacted strategic thinking and use of formal strategic tools and concepts:
Allocation of scarce resources Use of quantitative analysis in planning The concept of learning curves The concept of distinctive competence - first mentioned by Philip Selznick, a sociologist, in a debate about whether or not to combine the military forces into a single unit (i.e., no Army, Navy, Air Force, Marines, just the US Military).

More Recent Historical Development of Business Strategy

Not until very large companies with the ability to influence the competitive environment within their industries did strategic thinking in the business world begin to be articulated.
Alfred Sloan, CEO of GM, 1923 1946 - One of the first to analyze competition, Ford, and devise a strategic plan based on its strengths and weaknesses. Chester Barnard, Senior Executive of New Jersey Bell, 1930s - Argued managers should pay attention to strategic factors which depend on personal or organizational action.

Wartime (WWI and WWII) efforts also impacted strategic thinking and use of formal strategic tools and concepts:
Allocation of scarce resources Use of quantitative analysis in planning The concept of learning curves The concept of distinctive competence - first mentioned by Philip Selznick, a sociologist, in a debate about whether or not to combine the military forces into a single unit (i.e., no Army, Navy, Air Force, Marines, just the US Military).

The Evolution of Strategic Management

1950s
DOMINANT THEME

1960s-early 70s Corporate planning

Mid-70s-mid-80s Positioning

Late 80s 1990s Competitive advantage

2000s Strategic innovation

Budgetary planning & control Financial control

MAIN ISSUES

Planning growth &diversification

Selecting sectors/markets. Positioning for leadership Industry analysis Segmentation Experience curve Portfolio analysis

Focusing on sources of competitive advantage

Reconciling size with flexibility & agility

KEY CONCEPTS & TOOLS

Capital budgeting. Financial planning

Forecasting. Corporate planning. Synergy

Resources & Cooperative capabilities. strategy. Shareholder Complexity. value. Owning E-commerce. standards. Knowledge Management Alliances & networks Self -organiz ation & virtual organization

MANAGEMENT IMPLICATIONS

Coordination & control by Budgeting systems

Corporate planning depts. created. Rise of corporate planning

Diversification. Restructuring. Global strategies. Reengineering. Matrix structures Refocusing. Outsourcing.

What is Strategy?
Large-scale, future-oriented plan for interacting with competitive environment to achieve objectives Companys game plan Framework for managerial decisions
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How does strategy fit in.

strategy is the process by which individuals and organisations make choices about scarce resources so as to satisfy wants over time in an environment of uncertainty. They are aided in this process by market and nonmarket forces.

Strategic Management Defined

Art & science of formulating, implementing, and evaluating, crossfunctional decisions that enable an organization to achieve its objectives.

 Definition: Strategic management consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.

Key Attributes of Strategic Management: Directs the organization toward overall goals and objectives. Involves the inclusion of multiple stakeholders in decision making. Needs to incorporate short-term and long-term perspectives. Recognizes tradeoffs between efficiency and effectiveness.

What is strategic Management about

Understanding how firms create, capture, and sustain competitive advantage. Analyzing strategic business situations and formulating strategic plans. [strategy content]

Implementing strategy and organizing the firm for strategic success. [strategy process]

Fundamental Objective of Strategic Management is.

To Identify, Develop and Maintain

Sustainable Competitive Advantage.

 Sustainable competitive advantage occurs when a firm implements a value-creating strategy of which other companies are unable to duplicate the benefits or find it too costly to imitate. An important basis for sustainable competitive advantage is the development of resources and capabilities. Core competencies are resources and capabilities (often related to functional-level skills) that serve as a source of competitive advantage for a firm over its rivals.

Strategic Management
Set of decisions and actions used to implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals Responsibility = top managers & chief executive

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Strategic Management
Managers ask such questions as... What changes and trends are occurring? Who are our customers? What products or services should we offer? How can we offer these products or services most efficiently?
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Strategic management
Analysis: To understand the strategic positioning of the firm Choice: Formulate courses of action to achieve the desired strategic position Implementation: Plan and manage necessary changes in organisation

Why is SM, as a field of study, necessary? Why are all these theories/tools needed ?
Provides a framework for thinking about the business Creates a fit between the organization and its external environment. Provides a process of coping with change and organizational renewal Fosters anticipation, innovation, and excellence Facilitates consistent decision-making Creates organizational focus Acts as a process of organizational leadership. Finally and most importantly: To help the organization to succeed (outperform) against its competition!!

Strategy, Survival and Success

The ultimate goal of the organizations is to be successful success is:
Survival (long-term success) Achievement of Goals Above average returns/Profitability (probably most important, because it determines the ability to achieve the above two)

Strategy can help achieve success, but it doesnt guarantee itcertain features of strategy directly contribute to success:
1. 2. 3. 4. Goals that are simple, consistent, and long-term. Profound understanding of the competitive environment. Objective appraisal of resources. Effective implementation.

These observations concerning the role of strategy can be made in relation to most human endeavors be it warfare, chess, politics, sport or business.

Competition and Competitive Advantage

Competition provides the rationale for strategy without competition, strategy is of no concern. The essence of strategy is the interdependence of competitorsor the establishment of sustainable competitive advantage over rivals. The study of strategy involves how we go about identifying, establishing, and sustaining competitive advantage.

Thinking Strategically:
The Three Big Strategic Analysis Questions 1. Where are we now? What is our situation? 2. Where do we want to go?
Business(es) we want to be in and market positions we want to stake out Buyer needs and groups we want to serve

Outcomes we want to achieve

3. How will we get there?

Critical Tasks of Strategic Management

1 2 3

Formulate the companys mission Develop company profile, reflecting its internal conditions Assess companys external environment Analyze companys options Identify most desirable options Select long-term objectives and grand strategies Develop annual objectives and short-term strategies

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Implement the strategic choices

Evaluate success of the strategic process

Strategic Management Process

Scan External Environment National, Global

Identify Strategic Factors Opportunities, Threats Implement Strategy via Changes in: Leadership culture, Structure, HR, Information & control systems

Evaluate Current Mission, Goals, Strategies

SWOT

Define new Mission Goals, Grand Strategy

Formulate Strategy Corporate, Business, Functional

Scan Internal Environment Core Competence, Synergy, Value Creation

Identify Strategic Factors Strengths, Weaknesses

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Objectives need to meet five specifications

1. An objective should be clear, single, specific topics (It sould not be stated in vague form) 2. An objective should relate to a result, not to an activity to be performes (The objective is a result of an activity, not to performing the activity) 3. An objective should be measurable (An objective should be stated in quantitive terms whenever feasible) 4. An objective should contaion a time deadline and a responsible person of its achievement 5. An objective should be challenging but achievable.

A possible definition of goal-strategy system

Mission or Objective: WORDS long-term (3-5 yrs ?) somewhat visionary, business right to be in, our ambition
Goals: NUMBERS stretch, specific by year, sales, profit, competitive position (share), back-up sheets Strategies: WORDS, HOW to, FOCUS sustainable competitive advantage, long-term direction Measures: NUMBERS one or two per strategy, readiliy optainable, sensitive to permit 3-monthly readings Tactics: KEY NEXT PROJECTS recommended by Strategy Owner, agreed by top management, prioritized, time-defined, owners