Introduction to Business Strategy
Prof. Megha Trivedi
What is Strategy???
The strategy is about winning !
The Characteristics of Strategic Decisions Strategy is concerned with the long term direction of an organization.
It is concerned with the Scope of an organization's activities.
It is to achieve advantage for
It is a search for Strategic Fit with the business environment. (addressing changes)
It creates opportunities by building on an organization's recourses and competences. (skills, assets, finance, relationships, technical com etence facilities
The strategy is affected not only by the environmental forces and strategic capabilities but also by the values and expectations of those who have power in an organization.
Elements of successful Well defined long-term
Appraisal of the environment
Knowledge of own resources & capabilities
Successful Successful implementation
Successful R. Grant “Contemporary Strategy
ohnson and Scholes define Johnson strategy as follows "Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations".
Is a continuous, interactive process aimed at keeping an organization as a whole appropriately matched to its environment (Peter, 1988) A company’s strategy consists of the competitive efforts and business approaches that managers employ to please customers, compete successfully and achieving organizational objects
A strategy is the pattern or plan that integrates an organization’s major goals, policies and action sequences into a cohesive whole. A well-formulated strategy helps to marshal and allocate an organization’s resources resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment and contingent moves by intelligent o onents.
A company’s strategy is management’s game plan for growing the business, staking out a market position, attracting and pleasing customers, competing successfully, conducting operations, and achieving targeted objectives
Corporate Strategy The pattern of major objectives, purposes or goals and essential policies or plan for achieving those goals, stated in such way as to define what business the company is in or to be in and the kind of company it is or is to be.
Why is corporate strategy important? It deals with major, fundamental issues that affect the future organisation It involves the entire organisation organisation It involves the survival and development of the organisation Covers the range and depth of the organisation’s activities Directs the changing and evolving relationship of the organisation with its environment Is central to the development of sustainable competitive advantage ◦
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Some of the consequences of strategic decisions are: are: Strategic decisions can be complex in nature(geographic scope) Uncertainty about the future. It can affect operational decisions (finding new suppliers, building strong brand) Integration (outside and inside the organization
Relationships and network outside the organization
Strategic decisions involves considerable change for e.g. Mergers
Levels of Strategy Corporate Level Strategy: It is concerned with the overall purpose and scope of an organization and how values will be added to the different parts (business units) of the organization ie. Geographical coverage, diversity of products/ services or business units and how recourses
Corporate strategy is often stated explicitly in a "mission statement".
Business Level Strategy (SBU): It is about how to successfully compete in a particular market to increase the long term profitability and market share growth. It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc. Corporate-level strategy involves decisions about the organisation as a whole, strategic decisions are related to strategic business units SBU
Operational Strategy - is concerned with how each part of the business is organized to deliver the corporate and business-unit level strategic direction. Operational strategy therefore therefore focuses on issues of resources, processes, people etc.
Levels of Strategies Corporate
SBU A
SBU B Manufacturi ng Marketing Accounting HR
Corporate
SBU C
Competitiv e Function al
Content of strategy at different levels
corporate
Portfolio and resource
SBU
How to
Function
Product, market
Vocabulary Vocabulary of Strategy
Mission Overriding purpose in line with values/expectations of stakeholder e.g Be healthy and fit
Vision or strategic intent - Desi Desirred fut futur ure e stat state: e: the aspiration of the organization organization e.g. To run the London Marathon
Goal - General statement of aim or purpose e.g. Lose weight and strengthen muscles
Objective - Quantification or more precise statement of goal
Strategic capability - Resources, activities and processes: some will be unique and provide competitive advantage e.g. Proximity to a fitness centre; a successful diet (unique recourses and core competence)
Strategies- Long term direction e.g. Exercise regularly, compete in marathons locally, stick to appropriate diet
Business model - How product, service and information information flow between participating parties e.g. Associate with a collaborative network (join a running club)
Strategic Control- Monitoring of action steps to (a) assess effectiveness (b) modify
British Airways and the vocabulary of strategy
Vision ‘The BA Way’ Way’ – Service that matters for f or people who value how they fly Goals Profitability Profitability (operating margin 10% target) Customer advocacy (the number of customers who recommend BA) Safety and security (the number of customers who feel safe with BA) Respected company (the number of community stakeholders stakeholders who respect BA) Employee motivation (the number of employees who feel motivated to deliver BA’s goals) Values The BA Way is based on five core values: Understanding, Focused, Cost-conscious, Supportive, Trustworthy ◦
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Strategies The BA Way provides a high level statement of Strategies: - To be the best UK based network - To understand customers better than competitors - To develop a powerful brand that people know and trust. - To establish a competitive cost base. - To To wor work k to to ethe etherr as as one one team team..
Competitive Strengths ◦
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A « full service » airline with a strong brand identity, associated with high standards standards of service, comfort and safety Clearly defined and well-branded w ell-branded products products targeting specific customer segments Membership of the One World Alliance providing customers with a far more extensive extensive network than BA could provide alone Dominance of national and international slot allocations at London Heathrow airport A modern, flexible and cost-effective aircraft fleet As a listed company, BA must satisfy shareholder shareholder expectations, expectations, achieving profitability profitability through a combination of
Strategic Management
It includes understanding the strategic position of an organization, strategic choices for the future and turning strategy into action.
Exhibit 1.3 A model of the elements of
The Strategic Position It is concerned with the impact of strategy of the of the external environment, an organization's strategic capability (recourses and competence) and the expectations and influence of stakeholders
The Environment- Impact of complex political, economical, social, technological, environmental and legal world on the organization. It can create c reate opportunities or prove to be a threat.
The Strategic Capability - It is with the help of resources and competence that an organization achieves competitive advantage. The aim of strategic capability is to find out the strengths s trengths and weaknesses in an organization
Expectations and Purposes – Expectation depends on the power in the organization
It is important to understand strategic position to form a view of the key influences on the present and future well being of an organization, and what opportunities and threats are created by the environment, the capabilities of the organization and the expectations of stakeholders. stakeholders.
Strategic Choices It involves understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development
3. Business Level Strategy : Identifying the bases of competitive advantage.
2. Corporate Level Strategy: It is concerned with relationship between the separate parts of the business and how the corporate ‘parent’ adds values to these various parts. Corporate level Strategy includes decisions about the portfolio of roduct and or businesses and
3. Development Directions and Methods: It is concerned with development in different directions i.e. New product, new market, market, different customers with different methods like growing current current business, mergers and a nd acquisitions and /or strategic alliances with other organizations.
Strategy into Action It is concerned with ensuring that strategies are working in practice. 1. Structuring : Coordinating the activities to support successful performance. This includes organizations structures, processes and relationships (and the interaction between these elements.
2. Enabling : Enabling success through the way in which the separate resource area i.e. People, Information, Informat ion, Finance, and Technology echnology of an organization support strategies. The reverse is also important to success, namely the extent to which new strategies are built on the
3. Managing Change: Managing strategy very often involves change. How to manage change? Different types of role of people n managing change? Organizations approach towards change?
Strategy Development Processes Pr The way in which strategy develops in an organization.
1. Intended Strategies: Strategy development as deliberate management intent 2. Emergent Strategies : Strategy emerging out of the social and political processes that exist in and around all organizations
The Strategic Process
Analysis of environment
Constant
Identification of vision, mission, and objectives Analysis of resources
Strategic analysis
Strategy Development and implementatio
Constant
Strategic development and implementation
Tesco’s current strategy is clearly 1. to develop and maintain the core business 2. to expand its non-food range (TVs, computers clothes; cosmetics and toiletries). 3. to expand services: on-line shopping, credit cards, utility payments etc (in association with the Royal Bank of Scotland). 4. international expansion through a steady series of joint ventures and acquisitions in Central Europe and Asia
The following quotations from Porter (1996) and Porter (2001)5 capture the gist of this most recent thinking:
1. “The goal of strategy is to achieve a “superior long-term return on investment.” “Economic value is created when customers are willing to pay a price for a product or service that exceeds the cost of producing it.” (Porter 2001, p.71) 2. “Competitive strategy is about being different.” (Porter 1996, p.64) 3. “Strategy is the creation of a unique and valuable position, involving a different set of activities…. different from rivals” (Porter 1996, p.68)
5. “Strategy defines how all the elements of what a company does fit together.” (Porter (P orter 2001, p.71) 6. “Operational effectiveness and strategy are both essential to superior performance, which, after all, is the primary goal of any enterprise. But they work in different d ifferent ways.” (Porter 1996, p.61) 7. “Operational effectiveness means performing similar activities better than
