Chapter 1

Strategic
Management
Introduction to Business Strategy

Strategic Planning - Slide 1

I. Definition
Strategic Management

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 Strategic Management
Definition

What is Strategy?

A business strategy defines the way a firm competes in

an industry.

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 Strategic Management
Definition

“If I had six hours to chop down a tree, I’d spend the first four
sharpening the axe.”
Abraham Lincoln

Thinking before action

Holistic/systematic thinking
Complex thinking
Creative thinking
Action oriented thinking

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 Strategic Management
Definition

What is Strategy? A more comprehensive definition…

Strategy is the direction and scope of an organization

over the long term,
which achieves advantage
in a changing environment
through its configuration of resources and competences
with the aim of fulfilling stakeholders expectations.

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 Strategic Management
Definition

A strategy answer the basic questions:

Who are we?

Where are we?
Where do we go?
How to go there?

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 Strategic Management
Definition

The strategic management process

(or strategic process)

▪ The strategic management process refers to the process itself

of defining the organization’s strategy.

▪ It is the process by which managers make a choice of a set of

strategies for the organization to achieve better performances.

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 Strategic Management
Definition

The 5 steps of the strategic management process

1. Direction (Mission, Vision, Culture)

2. Environment scanning
3. Strategy Formulation
4. Implementation
5. Evaluation and control

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 Strategic Management

Mission, vision
& culture
Set the Direction of the Company
Who are we? Where do we go? (big direction)

Understand the company’s environment

Where are we?

Deciding the best course of action

Where do we go and how?

putting the strategy into action

How do we get there?

Make sure strategic objectives are met

Are we on the right tracks? Strategic Planning - Slide 9
 Strategic Management
Definition

The strategic process

▪ The strategic process within a company may be formal (i.e.
follow predetermined strict rules and schedule) or informal (“on the fly”,
uncoordinated and dynamically)

▪ The bigger the structure, the formal the process:

 With a dedicated team
 Regular meetings and a final strategic reports

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Strategic Management
Strategy in Practice

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 Strategic Management
Definition

• Factors influencing the rise of corporate planning:

– Development of theory in strategic management
– Increasing, global competition
– Rising complexity of economic/social environment

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2. Strategy Levels
Strategic Management

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 Strategic Management
Strategy Levels

▪ Strategy exist at several levels in an organization.

1. The top level is Corporate strategy level
2. The second level is Business-level strategy
3. The third level of strategy is at the operating end of an
organization: Operational (or Functional) strategies

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 Strategic Management
The 3 Levels of Strategy

i.e. (Sony Corporation)

Corporate Corporate Strategy
level

A division of the Strategic

company (i.e. TV
Division)
Business Unit Business Strategy
(SBU) level
A Department of the
Functional Strategy
company (i.e. Marketing,
Production,…) Functional level

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Strategic Management
The 3 Levels of Strategy

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 Strategic Management
LG Electronics Business Units

• Home Entertainment
– LCD TVs, Plasma TVs, Audio, Video, Optical Storage
• Mobile Communications
– Mobile handset (CDMA/GSM/3G), Mobile Accessory, PCB, WLL
• Home Appliance
– Washing Machines, Refrigerators, Cooking Appliances, Vacuum
Cleaners, Built-in Appliances
• Air Conditioning
– Residential Air Conditioners , Commercial Air Conditioners, Home
Solution, Compressors
• Business Solutions
– Monitors, Commercial Displays, Car Infotainment, Security Business
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 Strategic Management
MacDonald’s business units

Some very large firms, such as McDonald’s, are essentially single

businesses.

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 Strategic Management
Strategy Levels

Corporate Level Strategy

What do we decide at the Corporate-level strategy?
1. Define the direction
• Determine the Mission and Vision
• Build the Culture and Values
• The Corporate’s big Goals

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 Strategic Management
Strategy Levels

Corporate Level Strategy

What do we decide at the Corporate-level strategy?
2. Manage the portfolio of business units:
• Looking at which businesses to enter and exit and managing
relationships between them.
• Develop synergies among business units (resources may be
shared across businesses)
• Allocate capital and managerial resources to the different
businesses

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 Strategic Management
Strategy Levels

Corporate Level Strategy

What do we decide at the Corporate-level strategy?
3. Define the Structure: Establishing appropriate the
appropriate organization
• How to structure the organization?
– Corporate Structure:
o A corporate structure is the layout of the various departments,
divisions, and job positions that interact to conduct the business
of the company.

– IT (information technology) architecture

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 Strategic Marketing
Strategies Level

Business (or Business Unit) Level Strategy

What do we decide at the Business-level strategy?

• A strategic business unit (SBU) is a profit center that can be

planned independently from the other business units of the
firm.
• Concerns organizations characterized by multiple product
lines.

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 Strategic Management
Strategy Levels

Business (or Business Unit) Level Strategy

What do we decide at the Business-level strategy?

– Set the SBU’s Goals and objectives

– Target the appropriate markets and define the products /
services lines to enter, maintain, develop or exit.
– developing a competitive advantage for the products/
services lines.

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 Strategic Management
Strategy Levels

Functional Level Strategy

What do we decide at the Functional-level strategy?

• The functional level of the organization is the level of the

operating departments.
• The functional level strategies concern the following
departments:
Marketing R&D
Sales Information Technology
Finance and Accounting Purchases
Production Logistics
Human Resources etc.

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 Strategic Management
Strategy Levels

Functional Level Strategy

What do we decide at the Functional-level strategy?

• The functional strategies contain the details of how each

functional area should will contribute to the SBU strategic plan
and beyond to the Corporate strategic plan.
– Example: The Marketing strategy will develop the Marketing Mix
for each product and product lines according to the SBU strategic
choices.

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 Strategic Management

Core questions Strategic Process Organizational level

Who are we? Mission and Culture Corporate

Where do we go? Vision and Goals Corporate

Where are we? Environmental scanning Corporate and SBU

How do we get there? Strategy Formulation SBU & Functional

Strategy Implementation Functional

Evaluation and Control Functional

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 Strategic Management
The 3 Levels of Strategy in large - multiproduct organizations

Environmental Company Head Quarter

Factors Direction
Corporate
Strategy
Mission and Values - SBUs
Goals Structure
Vision Culture portfolio

SBU 1 SBU 2 SBU 3

Business Business Unit

Unit Products
Goals and Competitive Strategy
Lines
objectives Advantage
portfolio

HR Strategy R&D Marketing Operations I.T.

Strategy strategy Strategy
Functional
Strategy
Segmentation +
Business Functions Marketing Mix
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 Who defines strategy?

Strategy is designed by (or a by combination of):

▪ The Executive team
– CEO and Head Departments (COO, CMO, CFO, CPO, CIO, HRO, etc.), i.e.
Executives levels 1 and 2.
▪ The enlarged executive team (see McKinsey article)
– Includes Managers level 3
▪ The employees (Participatory Business Planning)
– Include front-line employees (ex. HCL)
▪ Consulting companies (BCG, McKinsey, etc.)

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 Additional Resources

https://www.youtube.com/watch?v=cCdu67s_C5E&t=6s

Employees first, customers second | Vineet Nayar |

TEDxAix

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Recommended Textbook
Gerry Johnson is Professor of Strategic Management at
Lancaster University. Kevan Scholes is Visiting
Professor of Strategic Management at Sheffield Hallam
University. Richard Whittington is Professor of Strategic
Management at University of Oxford.

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Strategic Planning - Slide 30