Chapter 1

The Strategy
Making Process

2012 South-Western, a part of Cengage Learning

 Notable Quotes
Plans are less important than planning
(Dele McConkey)

Without a strategy, an organization is like a

ship without a rudder, going around in circles,
its like a tramp; it has no place to go.
(Ross and Kaml)

Maybe I cant outrun that bear, but I surely can outrun you

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 Objective of this chapter
Competitive advantage and superior
performance
Strategic manager
Strategy making process
Strategy as an emergent process
Strategy planning in practice
Strategy decision making
Strategy leadership

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Some questions before we start?

Why do some firms succeed while other fails?

How to manage millions of customers ?

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What is Strategy?
Strategy
A set of actions that managers take to increase
their companys performance relative to
industry rivals.

Low price
Buy 1 get 1 free
Employees Training
Economies of scale

Company strategy >>>superior performance >>>>competitive advantage

2012 South-Western, a part of Cengage Learning
Successful Strategy = Competitive
Advantage
A strategy is implemented to create a competitive
advantage over other companies

Superior performance is when one companys

profitability is greater than the average profitability for
all firms in the industry

Profitability return that company makes on the

capital invested in the enterprise.

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Walmarts strategy
Efficient logistics ----------------------cost saving
Effective information system ------cost saving

Cost saving leads to lower prices

Lower prices leads to profitability of Walmart

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 Apple iPad Air vs. competitors
Product diversification

Lightness: The iPad Air is lighter, thinner than competitors.

Display Quality: The Retina display is visually superior to
competing tablets.
Software: Apple highlights both the base iOS and the bundled
Apple software as being better than what competitors offer.
Engineering: Apple seldom fails to highlight its superior
engineering and material quality than competitors.
Ease of Use: Since Apple makes both the hardware and
software, it often emphasizes its products ease of use.

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 Gaining a technological
advantage

Apple-Google-Microsoft-Samsung patent war

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 Competitive advantage
vs
sustained competitive advantage

CA: The advantage over rivals achieved

when a companys profitability is greater than
the average profitability of all firms in its
industry.

SCA: The competitive advantage achieved

when a company is able to maintain above
average profitability for a number of years.

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Strategic Managers
General Managers
Bear responsibility for overall performance
Functional Managers
Supervise a particular function (task, activity, or operation)

Multidivisional companies:
A company that competes in several different
businesses and has created a separate, self-
contained division to manage each of them.
e.g. PGC, Super Asia, Master, etc.
In multidivisional companies, three level of management
Corporate level
Business level
Functional level

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 Corporate Manager/General Managers
Corporate Managers oversee strategy for whole
company
Consists of CEO, senior executives, BOD and Corporate staff
Role of these are decision making within organization, Defining
goals of the organization, allocating resources among the
businesses, formulating and implementing strategies and provide
leadership for the entire organization.

Example of General Electric - GE

Wide range of businesses e.g. Lighting equipment ; motor and
transportation equipment; turbine generators, construction and
engineering services, medical systems, aerospace, aircraft engine
and financial services.
Role of GE-CEO: setting overall strategic goals, allocating
resources among businesses, where we invest,
All for maximize corporate profitability
Not responsibility to develop strategies for individual business
areas such as financial services,
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a part of generators, aero space
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 Business Manager/General Managers
Business Managers lead the strategy for their self-contained division

competitive strategies refer to business level manager

Principal business level manager is head of division.

Strategic roles: translate the general statements come from

corporate level into concrete strategies for individual business.

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 Functional level Managers
Functional Managers are responsible for one organizational activity

responsible for specific business functions or operations such

as human resources, purchasing, marketing, customer services.

To develop functional strategies in their area that Help fulfill the

strategic objectives

2012 South-Western, a part of Cengage Learning

Strategy Making Process
Select the corporate mission statement and
major goals
Analyze the external competitive environment
to identify strategic opportunities and threats
in the operating environment
Analyze the internal competitive environment
to pinpoint the strengths and weaknesses of
the organization

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Strategy Making Process (contd)
Select the strategy- contingent upon findings
in steps 1, 2, 3
Implement the strategy at every level of the
company
The feedback loop helps managers evaluate
the success of the strategy. Strategic
planning is ongoing.

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Defining Strategic Management
Strategic management can be defined as the art and
science of formulating, implementing, and evaluating
cross-functional decisions that enable an organization
to achieve its objectives.

The term strategic management in this text is used

synonymously with the term strategic planning.

The purpose of strategic management is to exploit

and create new and different opportunities for
tomorrow; long-range planning, in contrast, tries to
optimize for tomorrow the trends of today
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Stages of Strategic Management

The strategic-management process

consists of three stages:
strategy formulation,
strategy implementation, and
strategy evaluation

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Strategy Formulation

Vision & Mission

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection
Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation
Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions
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Pitfalls of Planning
The formal planning model does not consider:
The unpredictability of the real world

The role of lower-level managers

Microsoft productX-Box video game system
That success is often unplanned or
serendipity
TaTa Nano

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Planning for the Unplanned
Emergent Strategy

The unplanned responses to unforeseen

circumstances

Autonomous actions are actions taken by

lower-level managers to formulate new
strategies and convince top managers to alter
strategic priorities

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 Strategic Planning in Practice
Formal Planning not only for present competitive
position but also It is important to plan for the future
competitive environment
World is complex and unpredictable place
Scenario Planning
Formulating plans that are based on what if
scenarios about the future
Plan for not just one future, but a range of possible futures
50% of the Fortune 500 companies follow
Royal Dutch Shell (Oil company) pioneer in Scenario
SP push managers to think out of the Box

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Strategic Planning in Practice

Decentralized Planning
Incorporating all managers in planning, not
just the top level managers
Strategic Intent
Building new resources and capabilities to
create and exploit future opportunities

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Benefits of Strategic
Management

Financial Benefits

Improvement in sales

Improvement in profitability

Productivity improvement
Benefits of Strategic
Management

Non-Financial Benefits

Improved understanding of competitors strategies

Enhanced awareness of threats

Reduced resistance to change

Enhanced problem-prevention capabilities

 Strategic decision making
Cognitive Bias
Systemic errors in human decision making
that arise from the way people process
information

Cognitive biases lead managers to make bad

decisions, even with good information

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 Cognitive Biases
The prior hypothesis bias (prior beliefs)

Escalating commitment (already Committed)

Representativeness (in the tendency to generalize from small sample)

Illusion of control (overestimate ones ability to control events)

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Improving Decision Making
Devils advocacy- the critical analysis of a
plan
Dialectic Inquiry- the debate between
conflicting plans of action
The outside view- an evaluation of the project
against prior initiatives

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Strategic Leadership
Leadership skills are important for successful
strategic managers
A managers key strategic role is to use
knowledge, energy, and enthusiasm to
provide strategic leadership for subordinates

2012 South-Western, a part of Cengage Learning