Strategic Management

• Evolution• Interpretations• Theorists/ Gurus/ Critics

UCAN 28July98

Multi-disciplinary Nature

Strategic Management

EngineeringEngineering

SociologySociology

BusinessPractice

BusinessPractice

Case Studies

Case Studies

OrgPsychology

OrgPsychology

PoliticalScience

PoliticalScience

AcademicsAcademics

MilitaryMilitary

IndustrialEconomics

IndustrialEconomics

Scope of Strategic Management

• Process and Content balance

• Improving organizational effectiveness

• Long term effects

• Broad knowledge of the organization

• Balancing internal capabilities & external realities

• Choosing between strategies

• Implementing action

Terminology

• Strategy - concepts used in the management discipline

• Strategic planning - use of the concepts to develop a plan of action

• Strategic management - analysis and practice of strategy including the implementation of strategic plans

Traditional Strategy

• Generalship - formulating manoeuvres to obtain a specific goal

• Drafting war plans and shaping campaigns and their component battles

• Using judgement, intuition and best available information to effect success

• Selection and maintenance of the aim - the basis of planned sequences to attain the objective

Sun Tzu & the Art of Business

• Capture your market without destroying it• Avoid competitors’ strengths - attack

weaknesses• Use foreknowledge & deception to maximize the

power of business intelligence• Use speed & preparation to swiftly overcome the

competition• Use alliances & strategic control points in the

industry to shape your opponents & make them conform to your will

• Develop your character as a leader to maximize the potential of your employees (McNeilly,1997)

Historical Evolution

• Previous management models• Strategy & structure - Chandler• Design school - Andrews• Planning school - Ansoff• Competitive strategy/ advantage - Porter• Learning school - Mintzberg

Management Theory - Revision

• Scientific Management

• Classical Management & Organizational Theory

• Human Relations

Precursor models to Strategic Management

Scientific Management

• F W Taylor - hence Taylorism

• Engineering concepts applied to human activity

• Task specialization

• Measure, analyze & control - time & motion

• Application to administrative tasks

• Productivity rewards based on output performance

Classical Management

• Development of rational principles of management & organization design

• Complementary to scientific management

• Fayol’s 14 principles & Weber’s Ideal bureaucracy

• Functional specialization, lines of authority, span of control, planning and controlling

Human Relations

• Paternalism - Victorian concept of authority & proper behaviour of workers

• Welfarism - employee support, morale and productivity links

• Motivation - Maslow’s hierarchy of human needs

• Perception - McGregor’s Theory X and Theory Y - notion of employees

Modern Developments

• Chandler

• Ansoff

• Porter

• Mintzberg

Alfred D Chandler

•Study of US firms’ evolution as business entities

•Determined stages of corporate structural development based on growthstrategies used:

•entrepreneurial•functional management•multidivisional corporation

Chandler - Entrepreneurial

E m p loyee 1 E m p loyee 2 E m p loyee n

O w n er/M an ag erE n trep ren eu r

Entrepreneur dominates & participates in all businessThrives on challengeTHENExpansion in production & employees adds complexityGreater administrative workloadsGrowing markets & competitorsLEADS TO

Chandler - Functional

E m p loyees

M arke tin gM an ag er

E m p loyees

P rod u c tionM an ag er

E m p loyees

F in an ceM an ag er

P res id en t

Functional specialization by assigning executivesto manage business functionsGROWTH occurs due to:Vertical integration of suppliers/outletsProduct diversificationLEADS TO

Chandler - Multidivisional Corp

C orp ora teS u p p ort

M arke tin g P rod u c tion F in an ce

D ivis ion a lP res id en t

D ivis ion a lP res id en t

D ivis ion a lP res id en t

C E O

More efficient allocation of resources, accountability for performance & coordination between units

Chandler - Conclusions

• Structures usually begin with a highly centralized, low formalization & low complexity organization.

• Structural change occurs depending on the growth strategies employed.

• Structure follows strategy

H. Igor Ansoff

• Andrews’ Design School - sought environmental fit - matching internal SW to external OTs

• Ansoff’s Planning School - concentrated on formulation of objectives - use highly rational & detailed strategic planning processes

H. Igor Ansoff

• Business policy decisions affect 3 main areas:– operational: improving current activities– administrative: supporting and

organizing– strategic: shaping future activities

• Recurring operational problems indicate the need for strategic decisions

H. Igor Ansoff

• Planning Horizon - as far as you can see to predict the future with an accuracy of +/- 20%

• Concept of synergy - obtaining greater advantage from the combination of individual components of the organization - eg economies of scale leading to higher revenues

H. Igor Ansoff

• Strategic Issues Management - recognition & resolution

• Assumptions– manage issue that influence the

organization– the organization is able to engage in the

process and manage it– identify issues by SWOT& scanning– early discovery improves chances of

resolution & enhanced organizational performance

H. Igor Ansoff

• Strategic options– existing products to existing markets– existing products to new markets– new products to existing markets– new products to new markets

Michael Porter

• Introduced economic view to field

• Deterministic approach: STRUCTURE-CONDUCT-PERFORMANCE

• Market structure determines conduct of firm which determines performance

• Need to select a strategy that provides a competitive advantage

Michael Porter

POTENTIAL ENTRANTS

SUPPLIERS BUYERS

SUBSTITUTES

INDUSTRY COMPETITORS

Threat of New Entrants

Threat of Substitute Products

or Services

Bargaining Power

of Suppliers

Bargaining Power of Buyers

Rivalry among existing firms

First: Determine Industry Attractiveness

Michael PorterNext: Select a strategy for the Industry

• Low cost or Differentiation strategy

• Achieved by – cost leadership– differentiation– focus

• cost focus• differentiation focus

Michael Porter

Cost Leadership - being the lowest cost producer in the industry

– Compete on price, sell for less, still make profit eg No Name goods, Hyundai cars

– Hold price to that of rivals and make higher profits as costs are lower

Michael Porter

• Differentiation - unique in one or more lines valued by buyers eg Honda motorcycles, Body Shop products

• Focus - tailored strategies to serve selected segments or a group of segments in an industry

Porter’s Generic Strategies

Appropriate for commodity products & high priceelasticity markets

Consider:investing in plant & equipmentriding the experience curve to economies of scalestringent cost control & minimizationmarginal contribution analysis & aggressive pricing

Low Cost Producer

Differentiation Product is market unique in design, special features,quality or service. The greater the breadth of purchasermotives the greater the opportunities for differentiation.

Focussed Niche Specialization in chosen product market - may be geographic, related to customer groups or to product function.

Henry Mintzberg

• Definitions of strategy:

– as Plan - intended course of action– as Pattern - consistency in stream of

decisions and actions– as Position - firm’s location in the

environment– as Perspective - collective view of the

world based on experience

Henry Mintzberg

Intended strategy

Realizedstrategy

Unrealized strategy Emergent

strategy

Deliberatestrategy

Henry Mintzberg

• Criticism of strategic planning ‘fallacies’:

• Fallacy of Prediction - unreasonable to expect any accuracy in forecasts

• Fallacy of Detachment - impossible to adopt fully dispassionate approach in planning

• Fallacy of Formalization - difficult to formalize the irrational nature of the market or its operations

*Planned & emergent strategy

*Environmental scan: qualitative & quantitative

*Term 5 years plus

*Operations: MIS & Business IS

*Planning hierarchy: strategic, corporate operational

*Capital budget > recurrent

*Planned & emergent strategy

*Environmental scan: qualitative & quantitative

*Term 5 years plus

*Operations: MIS & Business IS

*Planning hierarchy: strategic, corporate operational

*Capital budget > recurrent

*Constrained strategy

*Environmental scan: quantitative emphasis

*Longer term (3 years)

*Operations MIS

*Control / accountability

*More external focus

*Devolved operations

*Outputs / results

*Extended budget

*Constrained strategy

*Environmental scan: quantitative emphasis

*Longer term (3 years)

*Operations MIS

*Control / accountability

*More external focus

*Devolved operations

*Outputs / results

*Extended budget

PlanningEffectiveness

PlanningEffectiveness

*Strategy by accident

*Short term

*Operations

*Control

*Annual Budget

*Inputs focus

*Strategy by accident

*Short term

*Operations

*Control

*Annual Budget

*Inputs focus

*Learning

*Path dependencies

*Complementary assets

*Complementary technologies

*Transaction costs

*Strategic HRM

*Learning

*Path dependencies

*Complementary assets

*Complementary technologies

*Transaction costs

*Strategic HRM

PHASE 1Basic FinancialPlanning

PHASE 1Basic FinancialPlanning

PHASE 2Corporate Planning

PHASE 2Corporate Planning

PHASE 3StrategicPlanning

PHASE 3StrategicPlanning

PHASE 4Strategic Management

PHASE 4Strategic Management

Evolution of Strategic ManagementEvolution of Strategic Management

PLANNING

SYSTEM

PLANNING

SYSTEM

MANAGEMENT

CONTROL

SYSTEM

MANAGEMENT

CONTROL

SYSTEM

ORGANIZATION

STRUCTURE

ORGANIZATION

STRUCTURE

COMMUNICATIONS

& INFORMATION

SYSTEM

COMMUNICATIONS

& INFORMATION

SYSTEM

MOTIVATION

&

REWARDS

SYSTEM

MOTIVATION

&

REWARDS

SYSTEM

• HUMAN RESOURCES

• ORGANIZATION CULTURE

• HUMAN RESOURCES

• ORGANIZATION CULTURE

ORGANIZATIONAL PLANNING & IMPLEMENTATIONORGANIZATIONAL PLANNING & IMPLEMENTATION