Lecture 2

STRATEGIC MANAGEMENT
 Strategy?
A course of action, including the
specification of resources required, to
achieve a specific objective.” CIMA:
Official Terminology

Strategic management must become both a

process and a way of thinking throughout the
organization.

Analyses, decisions, and actions an

organization undertakes in order to create and
sustain competitive advantages.

Leaders must be proactive, anticipate change,

and continually refine changes to their
strategies.
 Who are involved in Strategies?

Stakeholders
Those individuals, groups, and organizations who have a “stake” in
the success of the organization, including owners (shareholders in a
publicly held corporation), employees, customers, suppliers, the
community at large.
Leaders?
Leaders are the key force in determining the targets of the
organization and way to implement the plans and strategies.
Two Perspectives of Leaders:

1. Romantic View: Leader is the key force in organization’s success

2. External/Internal or Operational Control Perspective: Focus is
on external factors that may affect an organization’s success.
 Three Types of Leaders

 Local line leaders

 Have significant profit-and-loss responsibility
 Executive leaders
 Champion and guide ideas, create a learning infrastructure, establish a domain for taking
action
 Internal networkers
 Generate power through the conviction and clarity of their ideas
Example:
A CEO made a lot of mistakes such as committing errors in assessing the market
and competitive conditions and improperly redesigning the organization into
numerous business units. Such errors led to significant performance declines.
This illustrates the __________ perspective of leadership.

A. External control
B. Romantic
C. Internal mechanism
D. Operational
General Strategic Management Process
 Defining Strategic Management

Analysis
 Strategic goals (vision, mission, strategic objectives)
 Internal and external environment of the firm

Strategic decisions
 What industries should we compete in?
 How should we compete in those industries?
Actions
 Allocate necessary resources
 Design the organization to bring intended strategies to reality

Strategy Managers face two fundamental questions:

1. How should we compete in order to create competitive advantages in the
marketplace?
2. How can we create competitive advantages in the marketplace that are
unique, valuable, and difficult for rivals to copy or substitute?
 Key Attributes of Strategic Management

Ambidexterity
The challenge managers face of both aligning resources to take
advantage of existing product markets as well as proactively
exploring new opportunities.
Managers with this behaviour take time and are alert to opportunities
beyond the confines of their own jobs and behave like brokers,
always looking to build internal networks.

They are cooperative and seek out opportunities to combine their

efforts with others.

They are multi-taskers who are comfortable wearing more than one
hat.
 Ambidextrous managers ask!

 Do I meet my numbers?
Their target remain but not limited to, the numbers.
 Do I help others?
They keep asking themselves whether they are cooperative and helping others?
 What do I do for my peers?
They keep working and trying to know other work to see an opportunity to help.
 When I manage up, do I bring problems – or problems with
possible solutions?
They focus on identifying problems and suggesting solutions.
 Am I transparent?
They are not secret and under the table deal type people.
 Am I developing a group of senior managers who know me and
are willing to back my original ideas with resources?
They are willing to have networks.
 Strategy types

Strategies can be of two types:

1. Intended strategy: when the decisions are determined by analysis.

2. Realized strategy: When decisions are determined by analysis plus

unforeseen environmental developments, unanticipated resource
constraints, and/or changes in managerial preferences
 Strategic Process
The strategic process suggests that the realization of the intended strategy may
change abruptly. The intended strategy may be different from the realized
strategy.
The results may end up the organization into an unrealized strategy or the
external environment may speed up the process to the realized strategy or to
time lag for the realization.
 A firm’s strategy formulation is developed at several levels:
Business-level, Corporate level, International, Entrepreneurial

 Business level strategy

 Addresses the issue of how to compete in a given
business to attain competitive advantage
 Corporate-level strategy
 What businesses should we be in?
 How can businesses be managed to achieve synergy?
 International strategy
 What is the appropriate entry strategy?
 How do we go about attaining competitive advantage
in international markets?
 Entrepreneurial strategy
 How do we recognize viable opportunities?
 How do we formulate an effective strategy?
 Strategic Formulation Approaches
Rational Planning Incremental Freewheeling Emergent
Process Approach Opportunism Strategies
Top-down and Top-down and Top-down and Bottom-up and
Centralised centralised centralised decentralised
Time horizon Time horizon 6 Time horizon Time horizon
2-10 years months to 2 years day to day basis indefinite
Formal Less formal Informal planning Informal planning
Planning planning
Complex and Less complex Less complex Less complex
Costly and costly and costly and costly
Stable and Dynamic and Dynamic and Dynamic and
Certain uncertain uncertain uncertain
environment environment. environment. environment.
Inflexible Flexible. Flexible. Flexible.
 Rational Planning Process
Top-down (centralised) and formalised approach to strategic planning. Originated from the
USA e.g. the planning horizon for the organisation could be over 2-10 years.

Advantages:
 For transformational or radical
change
 Copes with the uncertain future
by providing long term plans
 Helps integrate and coordinate
complex organisations
Disadvantages
• Rational planning can be too
rigid and bureaucratic e.g. no use
for the small business
•Rational planning can stifle
innovation e.g. locked into plans
•No use for dynamic or uncertain
environments e.g. plans quickly
become ‘out of date’
 Rational Planning Process

Position
Audit Review & Control

Mission & Corporate Option Evaluation

Objectives Appraisal Generation and Choice

Implementation
Environment
Analysis
 Incremental Planning Approach
Top-down (centralised) and less formalised approach to strategic planning.
Smaller, gradual and more incremental adjustments to strategic plans e.g. every 6 months up
to 2 years maximum.

Advantages Disadvantages
 Less complex and long winded Too reactive, ‘muddling through’

 Better for uncertainty or rapidly Not suitable for transformational

changing environments or radical change

 More frequent gradual

Lack of long-term direction e.g.
‘strategic drift’ may occur
adjustment e.g. easier to control
and manage

 Greater frequency of planning to

adjust plans to environmental
change
 The Enterprenueral Model (or Freewheeling Opportunism)

Henry Mintzberg referred to ‘freewheeling opportunism’ as an opportunistic

strategy. It is dominated by the search for new opportunities, with bold and often
high risk decisions that need to be made by the entrepreneur him/herself.
Freewheeling opportunism is a top-down (centralised), informal and short-term
approach to strategic planning.

Advantages
 Focus on exploiting product and market
opportunities e.g. ‘never miss a good
opportunity’
 Less time consuming and complicated
 Greater frequency of planning to adjust
plans to environmental change
 Better for uncertainty or rapidly changing
environments
Disadvantages
•Organisation too reactive,
‘muddling through’
•Not suitable for transformational or
radical change
•Lack of long-term direction.
•Relies heavily on the judgment and
experience of the founder
e.g. one single individual
 Emergent Strategies

Henry Minzberg, described emergent strategies as ‘patterns or consistencies realized

despite or in the absence of conscious intention by senior management’.
Strategy emerges and is ‘unanticipated’.
Informal and bottom-up (decentralized approach) allowing strategic courses of
action to be developed from both tactical and operational levels within the
organisation.

Advantages Disadvantages
 Quicker change or repositioning for the •Chaotic organisation that lacks
organisation e.g. lower strategic levels control over planning
‘closer to the customer’ •Lack of long-term direction.
 Tactical and operational levels an extensive •Organisation too reactive,
source of innovative ideas
‘muddling through’
 Greater motivation to other strategic
Requires entrepreneurial skills from
 Levels
staff which may
 Supports culture of flexibility, learning and not exist
enterprise
 Strategy Implementation

 Ensuring proper strategic controls and

organizational designs

 Establishing effective means to coordinate and

integrate activities within the firm as well as
with suppliers, customers, and alliance partners
 Corporate Governance and Stakeholder Management

 Corporate governance
 The relationship among various
participants in determining the
direction and performance of
corporations

 Shareholders, management,
board of directors
Corporate Governance and Stakeholder Management

• Board of Directors
– Elected representatives of
the owners
– Ensure interests and
motives of management are
aligned with those of the
owners
Three mechanisms ensure effective
corporate governance:
•An effective and engaged board of
directors
•Shared activism
•Proper managerial rewards and
incentives
 Stakeholder Management

 Zero sum view

 Stakeholders compete for attention and resources of the
organization
 Gain of one is a loss to the other

 Rooted in the traditional conflict between workers and

management

 Stakeholder symbiosis view

 Stakeholders are dependent upon each other for their success
and well-being
 Mutual benefits
 Mendelow’s stakeholder mapping model

Mendelows matrix is a way of prioritising stakeholders by ‘subjective’

mapping of them, in order to understand and resolve any issues or conflicts
that may exist.

This model prioritises by mapping which stakeholders should more likely

considered and therefore ‘satisfied’ by the organisation.
 Power e.g. bargaining power, right or ability to exert influence over the organisations
strategic aims and the general way it conducts itself.

 Interest e.g. interest in the activities or conduct of the organisation for varied
reasons.
Mendelow’s stakeholder mapping model

Interest in the Organization

Low High
Low
Power over the Organization

Minimal Effort Keep Informed

(Priority four) (Priority Three)

Keep Satisfied Key Players

High

(Priority Two) (Priority One)

 Stakeholder Management

Outback Steakhouse has developed a sophisticated quantitative

model and found that there were positive relationships between
employee satisfaction, customer satisfaction, and financial results.
This is an example of __________.

A. Zero-sum relationship among stakeholders

B. Stakeholder symbiosis
C. Rewarding stakeholders
D. Emphasizing financial returns