BACHELOR ARTS (Hons) BUSINESS MANAGEMENT

MODULE MODULE CODE LECTURER DATE Strategy Strategy is the direction and scope of an organization over the long term: which achieves advantage for the organization through its configuration of resources within a changing environment, to meet the needs of markets and to fulfill stakeholder expectations. Levels of Strategy Strategies exist at three levels in an organization:1. Corporate Strategy is concerned with the overall purpose and scope of the organization to meet the expectations of owners or major stakeholders and add value to the different parts of the organization. This involves the actions and approaches crafted by management to produce successful performance in one specific line of business. A corporate or business strategy is powerful if it produces a sizeable and sustainable competitive advantage and it is weak if it results in a competitive disadvantage. 2. Functional Strategy refers to the managerial game plan for a particular functional activity, business process or key departments within the organization. 3. .Operating Strategy concerns how to manage the frontline organizational units within the business and how to perform strategically significant operating tasks e.g. material purchasing, maintenance, production etc. The first line managers are an important part of an organization strategy making effort because many operating units have strategy-critical targets and need to have the strategic plan in place to achieve them. Please note an organization strategy is at full power only when its many pieces are united. STRATEGIC MANAGEMENT BCH1C04 Mr. GONZALES 15-Oct-05

Level 1
Responsibility of corporate-level managers

Overall corporate scope and strategic vision

Corporate-Level Objectives

Corporate-Level Strategy

Level 2
Responsibility of business-level general managers

Business-Level strategic mission and vision

Business-Level Objectives

Business-Level Strategy

Level 3
Responsibility of heads of major functional activities within a business unit or division

Functional Area Missions

Functional Objectives

Functional Strategies

managers

Level 4
Responsibility of plant managers, geographic unit managers and managers of frontline operating units

Operating Unit Missions

Operating Unit Objectives

Operating Strategies

The networking of strategic visions, missions, objectives and strategies in the strategy making pyramid.

Strategic Management Process Mission/Vision

The overall direction and identity of the organization

Goals/Objectives
How the mission can be achieved

Strategic Analysis
Environmental analysis Corporate appraisal Internal analysis

Strategic Choice
Generating strategic options Evaluating options Making a choice

Implementation
Detailed strategy at the functional or operational level

Review, Monitor & Evaluate

Assess actual performance against the plans formulated

Strategic Analysis Upon establishing a mission statement, the next step is to analyze the external business environment in which the organization operates. Decision-makers need to analyze a variety of different components of the external organization. Identify the key players within those domains and be very cognizant of both threats and opportunities within the environment. Among critical factors in the external environment are o o o o o o Competition Industry structure or attractiveness Government regulations and politics Technology Market trends Economic trends

Corporate Appraisal Once an organization has scanned and assessed the external environment and identified any threats or opportunities, it then turns to third stage of strategic management i.e. assessing the internal/corporate environment of the organization. In this stage the key outcome is for decision makers to identify the organizations primary strength/weaknesses and find ways to capitalize on its strengths and improve or minimize the weaknesses as espoused by the resource-based view of strategic management. This requires the organization examines its resources and its internal management systems, particularly its corporate structure (systems). Johnson and Scholes described it as concerned with the o o o o o o The scope of the organizations activities Matching of activities of an organization to the environment in which it operates Matching organizational activities to its resources capabilities The allocation or reallocation of major resources in the organization The values, goals and expectations of those influencing strategy The direction an organization will move the in long run.

Key Concepts of Strategy o Competitive advantage

o o

Distinctive capabilities Strategic fit

Competitive Advantage The concept of competitive advantage was formulated by Michael Porter (1985). Porter asserts, it arises out of an organization creating values for its clients. To achieve it, organizations select markets in which they can excel and present a moving target to their competitors by continually improving their position. Porter emphasized the importance of differentiation which consists of o Offering a product or service that is perceived industry-wise as being unique and focus, i.e. serving a particular buyer group or product market more efficiently than competitors who compete more broadly. Porter then developed his well known framework (Porter Generic Strategy) that organizations use to gain competitive advantage o o o Innovation being the unique producer Delivering high quality goods to consumers Cost leadership the planned result of policies aimed at managing away expense. A distinction has been made by Barney (1991) between the competitive advantage that an organization presently enjoys by others will be able to copy, and sustained competitive advantage which competitors cannot imitate or substitute. This leads to the important concept of distinctive capabilities. 22-Oct-05 Distinctive Capabilities Kay (1999), comments the opportunities for companies to sustain competitive advantage is determined by their capabilities. A distinctive capability or competence can be described as an important feature that in Quinns (1980) phrase confers superiority on the organization. Kay extends this definition by emphasizing that there is a difference between distinctive capabilities and reproducible capabilities. Distinctive capabilities are those characteristics that cannot be replicated by competitors or can only be imitated with great difficulty.

Reproducible capabilities can be bought or created by any company with reasonable management skills, diligence and financial resources. Most technical capabilities are reproducible. Prahadad and Hamil (1990) argued that competitive advantage stems in the long term from a firm building core competencies which are superior to its rivals and from learning faster and applying its learning more effectively than its competitors. The latter point provides the rationale for the concept of knowledge management. Distinctive capabilities or core competencies describe what the organization is especially or capable of doing. They are what the company does particularly well I comparison with its competitors. According to Kay (1999) capabilities can exist in such areas as:o o o o o Technology Marketing Making good use of financial resources Innovation Delivering quality

If a company is aware of what its distinctive capabilities are, then it can concentrate on using or developing them without diverting efforts to less rewarding activities. Barney (1991) proposes four criteria for deciding whether a resource can be regarded as a distinctive capability or competence o o o o Value creation for customer Rarity compared to competitors Non-imitatability or cannot be imitated Non-substitutability

The concept of distinctive capability forms the foundation for resource-based strategy. Strategic Fit This concept states that to maximize competitive advantage a firm must match its capabilities and resources to the opportunities in the external environment. Assessment of the Internal/External Environment Without sufficient analysis of the business environment, any strategy program will be useless and without merit. There are some techniques which are useful in analyzing the business environments

SWOT analysis is a search for the elements of strengths, weaknesses, opportunities and threats affecting the organizations performances. The strength and weaknesses relate directly to the organization, whereas, the opportunities and threats emanate from the external environment. Unfortunately in inexperienced hands is inclined to generate a long list of points. The longer the list the less clear it is to see what strategies to apply.

PESTLE this analysis looks at the environmental trends. The wider environment in which the organization/industry are located can be sub-divided for analysis purposes, Political, Economic, Social, Technological, Legal and Ecological.

Porter Five Forces Model narrowing the analysis slightly to consider an environment of a particular industry the model developed by Porter has proven to be very useful indeed. This model looks at five competitive forces in the environment Potential new entrants The bargaining power of buyers The bargaining power of suppliers Threat of substitutes Rivalry among competitors

Porter suggests that the organization can adopt one of three strategies, differentiation, Cost leadership or Focus. This model is more helpful than a SWOT analysis in isolating a potential strategy. Boston Consultancy Group Matrix If an organization has portfolios of businesses then strategies have to be developed for the individual business units as well as for the organization as a whole. These SBUs are units which can be seen to stand alone in a sense that they have a unique mission, product line, competitors and markets but need to be assessed in the light of the other SBUs in the portfolios. The BCG Matrix analyses the business along two dimensions, market growth and market share. It is an analysis of strategic capability. Like the SWOT analysis, this model is easily recalled and can often be applied incorrectly.

5-Nov-05 The Internal Environment o Strategic Choice is used to emphasize the available goals, means and processes for integrating individuals into the organization and also the choice as to whether some or all of these goals, means and processes should be changed to meet changes in the environment. o Organization Self Assessment once an organization has scanned and assess its external environment and readily identify any threats or opportunities it then turns to the third stage of strategic management: assessing the internal environment on the organization. In this stage the key outcome is for decision makers to identify the organization primary strength and weaknesses and improve or minimize the weaknesses as espoused by the resource-based 1 view of strategic management. This requires the organization to examine its resources and the external management systems. Resources o Financial Resources can systematically affect an organization competitive advantage. An organization that has the ability to generate and/or borrow significant sums of money is able to convert these funds into other assets. Virtually all components of an organization business can be purchased so the presence or absence of financial resources can have a significant impact on an organization performance. o Physical Resources include the actual equipment and machinery owned or leased, as well as the location of the business and its proximity to customers, labor, raw materials and transportation2. Physical location is clearly a more important resource in some industries than others. A large manufacturing facility has far different choices and considerations with its physical resources than with a small business. o Human Resources includes not only the sum of technical knowledge of employees but also the personal traits including loyalty, commitment, judgment and motivation. An organization is only as strong or weak as its employees, and the skills background and motivation these employees bring to their jobs will be a
1 2

Resource-based model stresses the resources of the organization. Porters Value Chain Concept

key factor in the organizations overall performance. The organization also needs to consider the kinds of obligations it has to its employees in the form of contracts or agreements to continue to employ them and the extent it wishes to enter into such agreements in the future. o Technological Resources include the processes by which the organization produces its goods and services. The technology used by an organization can be a major influence on its cost structures and the measures of efficiency. A large number of organizations leverage their resources to their advantage by obtaining patents, trade-marks or copyrights. The extent to which an organization is able to safeguard its production processes can be a tremendous resource. o Capital Resources include the other items of value comprising brand-names, reputation with its customers, relationships with key players in the environment, and goodwill. Many items that can be grouped here are intangible but dont show up in the organizations financial statements. It has been argued that more observable an intangible resources is the more sustainable an advantage it may provide.