Contents
Business Policy and Planning
10-day Workshop
Rationale
Strategic Management is the art and science of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its objectives[1]. It is the process of specifying the organization's objectives, developing policies and plans to achieve these objectives, and allocating resources to implement the policies and plans to achieve the organization's objectives. Strategic management, therefore, combines the activities of the various functional areas of a business to achieve organizational objectives. It is the highest level of managerial activity, usually formulated by the Board of directors and performed by the organization's Chief Executive Officer (CEO) and executive team. Strategic management provides overall direction` to the enterprise and is closely related to the field of Organization Studies.
“Strategic management is an ongoing process that assesses the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment.” (Lamb, 1984:ix)[2]
Strategic management is a combination of three main processes namely; 1) strategy formulation 2) strategy implementation and 3) strategy evaluation
Strategy formulation involves:
1. Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental.
2. Concurrent with this assessment, objectives are set. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.
These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives.
This three-step strategy formulation process is sometimes referred to as determining where you are now, determining where you want to go, and then determining how to get there. These three questions are the essence of strategic planning. SWOT Analysis: I/O Economics for the external factors and RBV for the internal factors.
Strategy implementation involves:
1. Allocation of sufficient resources (financial, personnel, time, technology support)
2. Establishing a chain of command or some alternative structure (such as cross functional teams)
3. Assigning responsibility of specific tasks or processes to specific individuals or groups
4. It also involves managing the process. This includes monitoring results, comparing to benchmarks and best practices, evaluating the efficacy and efficiency of the process, controlling for variances, and making adjustments to the process as necessary.
5. When implementing specific programs, this involves acquiring the requisite resources, developing the process, training, process testing, documentation, and integration with (and/or conversion from) legacy processes.
Strategy evaluation involves:
- General approaches
- The strategy hierarchy
- Historical development of strategic management
- The psychology of strategic management
- Criticisms of strategic management
- Journals devoted primarily to strategic management
- Magazines that frequently contain strategic management articles
- Strategic planning
- Marketing strategies
- Military strategy
- Business model
- Business plan
- Marketing plan
- Value migration
- Management
- Marketing
- Proximity mapping
- Management consulting
- Strategy visualization
- Morphological analysis
- References
- The Journal of Business Strategies
- Strategy Compass
- Strategic Planning Society
- The Edge Perspectives Blog
- The Association of Internal Management Consultants -The nationwide network of Strategic Management and Planning professionals
Teaching and Learning Resources
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Introduction. The Case Study ApproachTutorials
Readings Problem-based learning (PBL) is a student-centered instructional strategy in which students collaboratively solve problems and reflect on their experiences. It was pioneered and used extensively at McMaster University, Hamilton, Ontario, Canada as well as the Monterrey Institute of Technology ITESM. The Materials department at Queen Mary, University of London was the first Materials department in the UK to introduce PBL.[1] PBL is based on the educational theories of Vygotsky, Dewey, and others, and is related to social-cultural constructivist theories of learning and instructional design. Characteristics of PBL are: 1. Learning is driven by challenging, open-ended, ill-defined and ill-structured, practical problems. 2. Students generally work in collaborative groups. Problem based learning environments may be designed for individual learning. 3. Teachers take on the role as "facilitators" of learning. 4. Instructional activities are based on learning strategies involving semantic reasoning, case based reasoning, analogical reasoning, causal reasoning, and inquiry reasoning.
These activities include creating stories; reasoning about cases; concept mapping; causal mapping; cognitive hypertext crisscrossing; reason analysis unredoing; analogy making; and question generating; In PBL, students are encouraged to take responsibility for their group and organize and direct the learning process with support from a tutor or instructor. Advocates of PBL claim it can be used to enhance content knowledge and foster the development of communication, problem-solving, and self-directed learning skill. PBL positions students in simulated real world working and professional contexts which involve policy, process, and ethical problems that will need to be understood and resolved to some outcome. By working through a combination of learning strategies to discover the nature of a problem, understanding the constraints and options to its resolution, defining the input variables, and understanding the viewpoints involved, students learn to negotiate the complex sociological nature of the problem and how competing resolutions may inform decision-making. Support systems, which include resources germane to the problem domain as well as instructional staff, are provided to scaffold students skills "just in time" and within their learning comfort zone (Vygotsky's Zone of Proximity)
Mission, Vision, Values
Tutorials
Readings Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ), PEST analysis (Political, Economic, Social, and Technological), STEER analysis (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors), and EPISTEL (Environment, Political, Informatic, Social, Technological, Economic and Legal). Strategic planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions:
In business strategic planning, the third question is better phrased "How can we beat or avoid competition?". (Bradford and Duncan, page 1). In many organizations, this is viewed as a process for determining where an organization is going over the next year or more -typically 3 to 5 years, although some extend their vision to 20 years. In order to determine where it is going, the organization needs to know exactly where it stands, then determine where it wants to go and how it will get there. The resulting document is called the "strategic plan." It is also true that strategic planning may be a tool for effectively plotting the direction of a company; however, strategic planning itself cannot foretell exactly how the market will evolve and what issues will surface in the coming days in order to plan your organizational strategy. Therefore, strategic innovation and tinkering with the 'strategic plan' have to be a cornerstone strategy for an organization to survive the turbulent business climate.
Business Objectives
Reading In economics, profit maximization is the process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem. The total revenue–total cost method relies on the fact that profit equals revenue minus cost, and the marginal revenue–marginal cost method is based on the fact that total profit in a perfectly competitive market reaches its maximum point where marginal revenue equals marginal cost.
Environmental Analysis
Tutorials
Reading Environmental scanning is a process of gathering, analyzing, and dispensing information for tactical or strategic purposes. The environmental scanning process entails obtaining both factual and subjective information on the business environments in which a company is operating or considering entering. 1. There are three ways of scanning the business environment: 2. Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis 3. Regular scanning - Studies done on a regular schedule (e.g. once a year) Continuous scanning (also called continuous learning) - continuous structured data collection and processing on a broad range of environmental factors Most commentators feel that in today's turbulent business environment the best scanning method available is continuous scanning because this allows the firm to act quickly, take advantage of opportunities before competitors do and respond to environmental threats before significant damage is done.
Competitive Analysis
Reading Competitor analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context through which to identify opportunities and threats. Competitor profiling coalesces all of the relevant sources of competitor analysis into one framework in the support of efficient and effective strategy formulation, implementation, monitoring and adjustment.[1] Given that competitor analysis is an essential component of corporate strategy, it is argued that most firms do not conduct this type of analysis systematically enough. Instead, many enterprises operate on what is called “informal impressions, conjectures, and intuition gained through the tidbits of information about competitors every manager continually receives.” As a result, traditional environmental scanning places many firms at risk of dangerous competitive blindspots due to a lack of robust competitor analysis.[2]
Competitive StrategiesReading Porter's five forces is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. It draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven down to zero. Three of Porter's five forces refer to competition from external sources. The remainder are internal threats. It is useful to use Porter's five forces in conjunction with SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats). Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally, requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make a return in excess of the industry average. Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers. This five forces analysis, is just one part of the complete Porter strategic models. The other elements are the value chain and the generic strategies.
Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope is a demand-side dimension (Porter was originally an engineer, then an economist before he specialized in strategy) and looks at the size and composition of the market you intend to target. Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm. In particular he identified two competencies that he felt were most important: product differentiation and product cost (efficiency). He originally ranked each of the three dimensions (level of differentiation, relative product cost, and scope of target market) as either low, medium, or high, and juxtaposed them in a three dimensional matrix. That is, the category scheme was displayed as a 3 by 3 by 3 cube. But most of the 27 combinations were not viable. Porter's Generic StrategiesIn his 1980 classic Competitive Strategy: Techniques for Analysing Industries and Competitors, Porter simplifies the scheme by reducing it down to the three best strategies. They are cost leadership, differentiation, and market segmentation (or focus). Market segmentation is narrow in scope while both cost leadership and differentiation are relatively broad in market scope.
Empirical research on the profit impact of marketing strategy indicated that firms with a high market share were often quite profitable, but so were many firms with low market share. The least profitable firms were those with moderate market share. This was sometimes referred to as the hole in the middle problem. Porter’s explanation of this is that firms with high market share were successful because they pursued a cost leadership strategy and firms with low market share were successful because they used market segmentation to focus on a small but profitable market niche. Firms in the middle were less profitable because they did not have a viable generic strategy. Combining multiple strategies is successful in only one case. Combining a market segmentation strategy with a product differentiation strategy is an effective way of matching your firm’s product strategy (supply side) to the characteristics of your target market segments (demand side). But combinations like cost leadership with product differentiation are hard (but not impossible) to implement due to the potential for conflict between cost minimization and the additional cost of value-added differentiation. Since that time, some commentators have made a distinction between cost leadership, that is, low cost strategies, and best cost strategies. They claim that a low cost strategy is rarely able to provide a sustainable competitive advantage. In most cases firms end up in price wars. Instead, they claim a best cost strategy is preferred. This involves providing the best value for a relatively low price.
Company Analysis
Tutorials
Reading Business analysis is the discipline[1] of identifying business needs and determining solutions to business problems. Solutions often include a systems development component, but may also consist of process improvement or organizational change or strategic planning and policy development. The person who carries out this task is called a business analyst or BA. [2] Those BAs who work solely on developing software systems may be called IT Business Analysts, Technical Business Analysts, or Systems Analysts.
Analysing and Measuring Performance
Readings
Competitive Advantage
Readings
Product Life-Cycles, Portfolio Analysis
Tutorials:
Readings
Exercise No. 23
Strategy Formulation Process
Tutorials
Readings
2. Evaluating the Organizational Environment - The next step is to evaluate the general economic and industrial environment in which the organization operates. This includes a review of the organizations competitive position. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors’ strengths and weaknesses. After identifying its strengths and weaknesses, an organization must keep a track of competitors’ moves and actions so as to discover probable opportunities of threats to its market or supply sources. 3. Setting Quantitative Targets - In this step, an organization must practically fix the quantitative target values for some of the organizational objectives. The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made by various product zones or operating departments. 4. Aiming in context with the divisional plans - In this step, the contributions made by each department or division or product category within the organization is identified and accordingly strategic planning is done for each sub-unit. This requires a careful analysis of macroeconomic trends. 5. Performance Analysis - Performance analysis includes discovering and analyzing the gap between the planned or desired performance. A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist. 6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of action is actually chosen after considering organizational goals, organizational strengths, potential and limitations as well as the external opportunities.
Entry and Exit. Strategic Choice
Tutorials
Readings In economics and mostly especially in the theory of competition, barriers to entry are obstacles in the path of a firm that make it difficult to enter a given market.[1]
Barriers to entry are the source of a firm's pricing power - the ability of a firm to raise prices without losing all its customers. The term refers to hindrances that an individual may face while trying to gain entrance into a profession or trade. It also, more commonly, refers to hindrances that a firm (or even a country) may face while trying to enter a market, industry or trade grouping. Barriers to entry restrict competition in a market.
Strategic Evaluation and Implementation
Tutorials:
Readings
Turnaround and End Game Strategies
Readings An exit strategy is a means of escaping one's current situation, typically an unfavourable situation. An organization or individual without an exit strategy may be in a quagmire. At worst, an exit strategy will save face; at best, an exit strategy will peg a withdrawal to the achievement of an objective worth more than the cost of continued involvement.
Recommended Texts
Resources
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