Strategic Management

1. Strategic Management BMGT 413 Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

2. What is Strategy? Strategy is the overall plan for deploying resources to establish a favorable position. Tactic is a scheme for a specific maneuver. Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

3. A DEFINITION OF STRATEGY • Strategy is the directionand scopeof anorganisation over the long termwhich • achieves advantage for the organisation • through its configuration of resources within • a changing environment to meet the needs • of marketsand to fulfil stakeholder • expectations. Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

4. LEVELS OF STRATEGY (1) • Corporate Level strategic decisions are concerned with: • overall purpose and scope • adding value to shareholder investment • portfolio issues • resource allocation between SBUs • structure and control of SBUs • corporate financial strategy Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

5. LEVELS OF STRATEGY (2) • Business Unit strategy is concerned with: • competitive strategy • developing market opportunities • developing new products/services • resource allocation within the SBU • structure and control of the SBU Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

6. LEVELS OF STRATEGY (3) • Operational Strategies are concerned with: • the integration of resources, processes, people and skills • to implement strategy Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

7. Purpose of strategy • To position or set direction within environment • To focus effort within the organization • To define the organization, to give meaning to the organization’s activities • To provide consistency • For efficiency & focus Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

8. Characteristics of strategic decisions… • Important • Involve a significant commitment of resources • Not easily reversible Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

9. Thinking Strategically:The Three Big Strategic Questions • 1. Where are we now -- what is our situation? • 2. Where do we want to go? • 3. How will we get there? Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

10. What Is Strategy? Concept • Competitive moves and business approaches management employs in running a company • Management’s “game plan” to • Please customers • Position a company in its chosen market • Compete successfully • Achieve good business performance A. Thompson, Jr. & A. J. Strickland, (1998)I Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

11. Basic Framework Involves External Environment Competitors Customers Suppliers etc The firm Goals & Values Resources & Capabilities Structures & Systems Strategy Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

12. Missions vs. Strategic Visions • A missionstatement focuses on current business activities • For example: • Customer needs currently being served • Astrategic vision concerns a firm’sfuture business path • The kind of company it is trying to become • Customer needs to be satisfied in the future Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

13. Developing a Strategic Vision • A strategic vision is a roadmap of a company’s future -- • Direction it is headed • Business position it intends to stake out • Capabilities it plans to develop • Customer needs it intends to serve Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

14. TERM • Mission • Vision or strategic intent • Goal • Core competences • DEFINITION • Overriding purpose in line with the values or expectations of stakeholders • Desired future state: the aspiration of the organisation • General statement of aim or purpose • Resources, processes or skills which provide ‘competitive advantage’ Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

15. Definitions Strategic Management Process The full set of commitments, decisions, and actions required for a firm to create value and earn above-average returns Value Creation What is achieved when a firm successfully formulates and implements a strategy that other companies are unable to duplicate or find too costly to imitate. Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

16. Definitions Average Returns Returns that are equal to those an investor expects to earn from other investments with a similar amount of risk Above-Average Returns Returns that are in excess of what an investor expects to earn from other investments with a similar amount of risk Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

17. Definitions Risk An investor’s uncertainty about the economic gains or losses that will result from a particular investment Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

18. The Five Tasksof Strategic Management Task 2 Task 3 Task 4 Task 5 Task 1 Develop a Strategic Vision & Mission Set Objectives Craft a Strategy to Achieve Objectives Implement & Execute Strategy Evaluate & Make Corrections Revise as Needed Revise as Needed Improve/ Change Improve/ Change Recycle as Needed Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

19. Competitive Landscape Dynamics of strategic maneuvering among global and innovative combatants Price-quality positioning, new know-how, first mover Hypercompetitive environments Protect or invade established product or geographic markets Fundamental nature of competition is changing Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

20. Competitive Landscape Goods, services, people, skills, and ideas move freely across geographic borders Emergence of global economy Spread of economic innovations around the world Hypercompetitive environments Political and cultural adjustments are required Fundamental nature of competition is changing Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

21. Competitive Landscape Increasing rate of technological change and diffusion Emergence of global economy Rapid technological change The information age Increasing knowledge intensity Hypercompetitive environments Fundamental nature of competition is changing Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

22. Expectations and purposes Expectations and purposes Resources, competences and capability The environment Strategic analysis Bases of strategic choice Organisation structure and design Strategic choice Strategy implementation Resource allocation and control Strategic options Strategy evaluation and selection Managing strategic change A summary model of the elements of strategic management Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

23. Strategic Flexibility A set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment It involves coping with uncertainty and the accompanying risks Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

24. Strategic reorientation Capacity to learn Organizational slack Strategic Flexibility Strategic Flexibility Strategic Flexibility Strategic flexibility Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

25. General Global Political/Legal Demographic Economic Sociocultural Technological Environment I/O Model of Above-Average Returns 1. External Environments 1. Strategy dictated by the external environment of the firm (what opportunities exist in these environments?) 2. Firm develops internal skills required by external environment (what can the firm do about the opportunities?) Industry Environment Competitor Environment Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

26. Four Assumptions of the I/O Model 1. The external environment is assumed to possess pressures and constraints that determine the strategies that would result in above-average returns 2. Most firms competing within a particular industry or within a certain segment of it are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

27. Four Assumptions of the I/O Model 3. Resources used to implement strategies are highly mobile across firms 4. Organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests, as shown by their profit-maximizing behaviors Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

28. The External Environment I/O Model of Above-Average Returns • 1. Study the external environment, especially the industry environment • economies of scale • barriers to market entry • diversification • product differentiation • degree of concentration of firms in the industry Industrial Organization Model Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

29. The External Environment An Attractive Industry I/O Model of Above-Average Returns 2. Locate an attractive industry with a high potential for above-average returns Industrial Organization Model Attractive industry: one whose structural characteristics suggest above-average returns Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

30. The External Environment An Attractive Industry Strategy Formulation I/O Model of Above-Average Returns 3. Identify the strategy called for by the attractive industry to earn above-average returns Industrial Organization Model Strategy formulation: selection of a strategy linked with above-average returns in a particular industry Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

31. The External Environment An Attractive Industry Strategy Formulation Assets and Skills I/O Model of Above-Average Returns 4. Develop or acquire assets and skills needed to implement the strategy Industrial Organization Model Assets and skills: those assets and skills required to implement a chosen strategy Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

32. The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation I/O Model of Above-Average Returns 5. Use the firm’s strengths (its developed or acquired assets and skills) to implement the strategy Industrial Organization Model Strategy implementation: select strategic actions linked with effective implementation of the chosen strategy Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

33. The External Environment An Attractive Industry Strategy Formulation Assets and Skills Strategy Implementation Superior Returns I/O Model of Above-Average Returns Industrial Organization Model Superior returns: earning of above-average returns Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

34. The Firm Resource-based Model of Above Average Returns 1. Strategy dictated by the firm’s unique resources and capabilities 2. Find an environment in which to exploit these assets (where are the best opportunities?) 1. Firm’s Resources Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

35. Resources Resource-based Model of Above Average Returns 1. Identify the firm’s resources-- strengths and weaknesses compared with competitors Resource-based Model Resources: inputs into a firm’s production process Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

36. Resources Capability Resource-based Model of Above Average Returns 2. Determine the firm’s capabilities--what it can do better than its competitors Resource-based Model Capability: capacity of an integrated set of resources to integratively perform a task or activity Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

37. Four Attributes of Resources and Capabilities (Competitive Advantage) Valuable allow the firm to exploit opportunities or neutralize threats in its external environment Rare possessed by few, if any, current and potential competitors Resources and Capabilities Costly to imitate when other firms cannot obtain them or must obtain them at a much higher cost Nonsubstitutable the firm is organized appropriately to obtain the full benefits of the resources in order to realize a competitive advantage Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

38. Resources and capabilities that meet these four criteria become a source of: Valuable Rare Core Competencies Core Competencies Resources and Capabilities Costly to imitate Nonsubstitutable Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

39. Core Competencies are the basis for a firm’s Competitive advantage Value Creation Core Competencies Ability to earn above-average returns Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

40. Resources Capability Competitive Advantage Resource-based Model of Above Average Returns 3. Determine the potential of the firm’s resources and capabilities in terms of a competitive advantage Resource-based Model Competitive advantage: ability of a firm to outperform its rivals Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

41. Resources Capability Competitive Advantage An Attractive Industry Resource-based Model of Above Average Returns 4. Locate an attractive industry Resource-based Model An attractive industry: an industry with opportunities that can be exploited by the firm’s resources and capabilities Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

42. Resources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl Resource-based Model of Above Average Returns 5. Select a strategy that best allows the firm to utilize its resources and capabilities relative to opportunities in the external environment Resource-based Model Strategy formulation and implementation: strategic actions taken to earn above average returns Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

43. Resources Capability Competitive Advantage An Attractive Industry Strategy Form/Impl Superior Returns Resource-based Model of Above Average Returns Resource-based Model Superior returns: earning of above-average returns Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

44. Strategic Intent & Mission • Strategic Intent • Winning competitive battles by leveraging the firm’s resources, capabilities, and core competencies • Strategic Mission • An application of strategic intent in terms of products to be offered and markets to be served Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

45. Emergent and Deliberate Strategies IntendedStrategy DeliberateStrategy RealizedStrategy EmergentStrategy UnrealizedStrategy From “Strategy Formation in an Adhocracy” by Henry Mintzberg and Alexandra McHugh, Administrative Science Quarterly, Vol. 30, No. 2, June 1985. Reprinted by permission of Administrative Science Quarterly. Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

46. Strategic Management Process for Intended Strategies Missionsand Goals InternalAnalysis Strategic Choice ExternalAnalysis INTENDED STRATEGY Organizing forImplementation Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

47. InternalAnalysis ExternalAnalysis Missionsand Goals Strategic Choice Does It Fit? EMERGENT STRATEGY OrganizationalGrassroots Strategic Management Process for Emergent Strategies Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

48. THE FIRM The Firm and Its Stakeholders Stakeholders Groups who are affected by a firm’s performance and who have claims on its wealth The firm must maintain performance at an adequate level in order to retain the participation of key stakeholders Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

49. The Firm and Its Stakeholders Stakeholders Capital Market Stakeholders • Shareholders • Major suppliers of capital • Banks • Private lenders • Venture capitalists Prepared by Dr Kamau – gkamau@Kabarak.ac.ke

50. The Firm and Its Stakeholders Stakeholders Capital Market Stakeholders Product Market Stakeholders Primary customers Suppliers Host communities Unions Prepared by Dr Kamau – gkamau@Kabarak.ac.ke