Strategic Choice

Strategic Choice

 Selection of the Best Strategy –

 Ability of the proposed strategy to deal with strategic

factors developed earlier in SWOT analysis.

 Ability of each alternative to satisfy agreed-on objectives

with the least resources and the fewest negative side
affects.
Strategic choice

 Strategic choice is evaluation of alternative

strategies and selection of the best
alternative.

 The best strategic decisions are not arrived

at through consensus. They actually involve a
certain amount of heated disagreement and
even conflict.
Process of Strategic Choice
Key Issues: Strategic Choice in Single
Businesses

1. What strategies are most effective at

building sustainable competitive
advantages for single business units?

2. Should dominant-product/service
businesses diversify to build value and
competitive advantage? What grand
strategies are most appropriate?
Prominent Sources of Competitive
6

Advantage (Porter’s 3 Generic Strategies)

Cost leadership

Sources of Differentiation
competitive
advantage Speed

Market focus
 7

Evaluating A Business’s Cost Leadership

Opportunities
A. Skills and Resources Fostering Cost Leadership
• Sustained capital investment and access to capital
• Process engineering skills
• Intense supervision of labor or core technical operations
• Products or services designed for ease of manufacture or
delivery
• Low-cost distribution system
B. Organizational Requirements Supporting Cost Leadership
• Tight cost control
• Frequent, detailed control reports
• Continuous improvement and benchmarking orientation
• Structured organization and responsibilities
• Incentives based on meeting strict, usually quantitative targets
 8

Evaluating A Business’s Cost Leadership Opportunities --

C. Examples of Ways Businesses Achieve Competitive Advantage
Process innovations Product redesign to reduce Technology
lowering production costs number of components development

Safety training for all employees reduces absenteeism, Human

resource
downtime, and accidents management

Reduced levels of management Computerized, integrated information General

cuts corporate overhead system reduces errors and costs administration

Pr
Favorable long-term contracts; captive suppliers or key customer

of i
for supplier Procurement

t
Subcontracted
service
Global, online Economy of Computerized Cooperative technicians

ce
m
suppliers scale in plant routing lowers advertising repair

r vi
a
Se
with

r
product
provide reduces transportation

g
distributors correctly

in
automatic equipment expense
creates local first time
or bear
restocking of costs and cost advantagecosts
orders based depreciation in buying
on sales media space
and time
Inbound logistics Operations Outbound logistics Marketing & sales
 9

Advantages of a Cost Leadership Strategy

Low-cost
Low-costadvantages
advantagesreduce
reducelikelihood
likelihoodof
ofpricing
pricing
pressure
pressurefrom
frombuyers
buyers
Sustained
Sustainedlow-cost
low-costadvantages
advantagesmay
maypush
pushrivals
rivalsinto
into
other
otherareas,
areas,lessening
lesseningprice
pricecompetition
competition
New
Newentrants
entrantsmust
mustface
facean
anentrenched
entrenchedcost
costleader
leader
without
withoutexperience
experienceto
toreplicate
replicatecost
costadvantages
advantages
Low-cost
Low-costadvantages
advantagesshould
shouldlessen
lessenattractiveness
attractivenessof
of
substitutes
substitutes
Higher
Highermargins
marginsallow
allowlow-cost
low-costproducers
producersto
to
withstand
withstandsupplier
suppliercost
costincreases
increases
 10

Key Risks of Cost Leadership

Many
Manycost-saving
cost-savingactivities
activitiesare
areeasily
easilyduplicated
duplicated

Exclusive
Exclusivecost
costleadership
leadershipcan
canbecome
becomeaatrap
trap

Obsessive
Obsessivecost
costcutting
cuttingcan
canshrink
shrinkother
othercompetitive
competitive
advantages
advantagesinvolving
involvingkey
keyproduct
productattributes
attributes

Cost
Costdifferences
differencesoften
oftendecline
declineover
overtime
time
 11

Evaluating A Business’s Differentiation

Opportunities
A. Skills and Resources Fostering Differentiation
• Strong marketing abilities
• Product engineering
• Creative talent and flair
• Strong capabilities in basic research
• Corporate reputation for quality or technological leadership
• Long tradition in an industry or unique combination of skills
• Strong cooperation from channels and suppliers of major components

B. Organizational Requirements Supporting Differentiation

• Strong coordination among functions in R&D, product development, and
marketing
• Subjective measurement and incentives instead of quantitative measures
• Amenities to attract highly skilled labor, scientists, and creative people
• Tradition of closeness to key customers
• Some personnel skilled in sales and operations - technical and marketing
 12

Evaluating A Business’s Differentiation Opportunities --

C. Examples of Ways Businesses Achieve Competitive Advantage
Cutting edge production technology and product Technology
features to maintain a distinct image and actual product development

Programs to ensure technical competence of sales staff Human

resource
and marketing orientation of service personnel management

Comprehensive, personalized database to build knowledge of customers General

to be used in customizing how products are sold, serviced, and replaced administration

Pr
Quality control presence at key supplier facilities; work with

ofi
suppliers’ new product development activities Procurement

t
Allowing service
personnel
Purchase Careful JIT Expensive, considerable

m
inspection of coordination

ce
superior informative discretion to

rvi

a
products at with buyers; advertising credit

r
Se
quality, well-

gi
each step in use of own or customers

n
known and promotion
for
production to captive repairs
components, improve transportation to build brand
raising quality performance service to image
and image of and lower ensure
final products defect rates timeliness
Inbound logistics Operations Outbound logistics Marketing & sales
 13

Advantages of a Differentiation Strategy

Rivalry
Rivalryisisreduced
reducedwhen
whenaabusiness
businesssuccessful
successful
differentiates
differentiatesitself
itself

Buyers
Buyersare
areless
lesssensitive
sensitiveto
toprices
pricesfor
foreffectively
effectively
differentiated
differentiatedproducts
products

Brand
Brandloyalty
loyaltyisishard
hardfor
fornew
newentrants
entrantsto
to
overcome
overcome
 14

Key Risks of Differentiation

Imitation
Imitationnarrows
narrowsperceived
perceiveddifferentiation,
differentiation,
rendering
renderingdifferentiation
differentiationmeaningless
meaningless

Technological
Technologicalchanges
changesthat
thatnullify
nullifypast
past
investments
investmentsor
orlearning
learning

Cost
Costdifference
differencebetween
betweenlow-cost
low-costcompetitors
competitorsand
and
the
thedifferentiated
differentiatedbusiness
businessbecomes
becomestoo
toogreat
greatfor
for
differentiation
differentiationto
tohold
holdbrand
brandloyalty
loyalty
Creating a Competitive Advantage Based
15

on Speed
 Has become a major source of competitive
advantage for many firms
 Involves the availability of a rapid response to
customers by
 Providing current products quicker
 Accelerating new product development or improvement
 Quickly adjusting production processes
 Making decisions quickly
 16

Evaluating A Business’s Rapid Response Opportunities

A. Skills and Resources Fostering Speed
• Process engineering skills
• Excellent inbound and outbound logistics
• Technical people in sales and customer service
• High levels of automation
• Corporate reputation for quality or technical leadership
• Flexible manufacturing capabilities
• Strong downstream partners
• Strong cooperation from suppliers of major components

B. Organizational Requirements Supporting Rapid Response

• Strong coordination among functions in R&D, product development, and
marketing
• Major emphasis on customer satisfaction in incentive programs
• Strong delegation to operating personnel
• Tradition of closeness to key customers
• Some personnel skilled in sales and operations - technical and marketing
• Empowered customer service personnel
 17

Evaluating A Business’s Rapid Response Opportunities --

C. Examples of Ways Businesses Achieve Competitive Advantage
Use of companywide technology sharing activities and
autonomous product development teams to speed new Technology
product development development

Develop self-managed work teams and decision Human

resource
making at lowest levels to increase responsiveness management
Highly automated and integrated information processing
system; include major buyers in the systems on a real-time General
administration
basis

Pr
of i
Pre-approved, online suppliers integrated into production
Procurement

t
Locate service
technicians
Working very Standardize JIT delivery Use of at customer

ce
m
closely with dies,

rvi
plus laptops facilities that

a
Se
suppliers to components,

r
partnering linked are

g in
include their and geograph-
with express directly to ically
choice of production
warehouse equipment to mail services operations close
to
location to allow quick to ensure speed the
minimize changeover to very rapid order process
delivery time new or special delivery and shorten
orders the sales cycle
Inbound logistics Operations Outbound logistics Marketing & sales
 18

Advantages of a Speed-Based
Strategy
Creates
Createsaaway
waytotolessen
lessenrivalry
rivalrybecause
becausefirm
firmhas
hasthe
the
availability
availabilityof
ofsomething
somethingaarival
rivalmay
maynot
not

Allows
Allowsfirm
firmto
tocharge
chargebuyers
buyersmore,
more,engender
engenderloyalty,
loyalty,
or
orenhance
enhanceits’
its’position
positionrelative
relativeto
toits
itsbuyers
buyers

Generates
Generatescooperation
cooperationand
andconcessions
concessionsfrom
from
suppliers
supplierssince
sincethey
theybenefit
benefitfrom
fromincreased
increasedrevenues
revenues

Substitutes
Substitutesand
andnew
newentrants
entrantsare
aretrying
tryingto
tokeep
keepup
up
with
withthe
therapid
rapidchanges
changesrather
ratherthan
thanintroducing
introducingthem
them
 19

Key Risks of a Speed-Based Strategy

Speeding
Speedingupupactivities
activitiesthat
thathave
havenot
notbeen
been
conducted
conductedin inaafashion
fashionprioritizing
prioritizingrapid
rapid
response
responseshould
shouldonly
onlybe
bedone
doneafter
afterattention
attentionto
to
training,
training,reorganization,
reorganization,and/or
and/orreengineering
reengineering

Some
Someindustries
industries--stable,
stable,mature
matureones
ones--may
maynot
not
offer
offermuch
muchadvantage
advantageto toaafirm
firmintroducing
introducing
some
someforms
formsofofrapid
rapidresponse
response
Service Blueprinting

It is a picture or a map that accurately

portrays the service system so that
different people involved in providing it
can understand and deal with it
objectively regardless of their roles from
their individual point of view.
Service Blueprinting

It is a tool for simultaneously depicting the

service process, the points of customer
contacts, and the evidence of service from
the point of view of the customer.

PROCESS
SERVICE
BLUEPRINT CONTACT PTS.

EVIDENCE
Service Blueprint of Luxury Hotel

4-22
 23

Industry Environments and Strategy

Choices
Emerging Industries
Growth Industries
Mature Industries
Declining Industries
Fragmented Industries
Global Industries
 24

Strategic Options for Emerging

Industries
1.
1. Ability
Ability to
to shape
shape industry’s
industry’s structure
structure

2.
2. Ability
Ability to
to rapidly
rapidly improve
improve product
product quality
quality

3.
3. Establish
Establish favorable
favorable relations
relations with
with key
key suppliers
suppliers

4.
4. Ability
Ability to
to establish
establish technology
technology as
as dominant
dominant force
force

5.
5. Acquire
Acquire aa core
core group
group of
of loyal
loyal customers
customers

6.
6. Ability
Ability to
to forecast
forecast future
future competitors
competitors
 25

Strategic Options for Maturing

Industries
1.
1. Prune
Prune the
the product
product line
line
2.
2. Emphasize
Emphasize process
process innovation
innovation
3.
3. Emphasize
Emphasize cost
cost reductions
reductions
4.
4. Focus
Focus on
on selecting
selecting loyal
loyal buyers
buyers
5.
5. Pursue
Pursue horizontal
horizontal integration
integration
6.
6. Expand
Expand internationally
internationally
Strategic Options for Mature/Declining
26

Industries
1.
1. Focus
Focus on
on key
key market
market segments
segments offering
offering
growth
growth opportunities
opportunities
2.
2. Emphasize
Emphasize product
product innovation
innovation and
and
quality
quality improvement
improvement
3.
3. Emphasize
Emphasize production
production and
and distribution
distribution
efficiency
efficiency

4.
4. Gradually
Gradually harvest
harvest the
the business
business
 27

Strategic Options for Fragmented Industries

1.
1. Tightly
Tightly managed
managed decentralization
decentralization--Intense
Intenselocal
local
coordination,
coordination,high
highpersonal
personalservice,
service,local
localautonomy
autonomy

2.
2. Formula
Formula facilities
facilities--Standardized,
Standardized,efficient,
efficient,low-cost
low-cost
facilities
facilitiesat
atmultiple
multiplelocations
locations

3.
3. Increased
Increased value
value added
added--Difficult
Difficultto
todifferentiate
differentiate
products/services
products/services

4.
4. Specialization
Specialization--Product
Producttype,
type,customer
customertype,
type,type
typeof
of
order,
order,geographic
geographicareas
areas

5.
5. Bare
Bare bones/no
bones/no frills
frills--Intense
Intenselow
lowmargin
margincompetition
competition
(low
(lowoverhead,
overhead,minimum
minimumwages,
wages,tight
tightcost
costcontrols)
controls)
 28

Characteristics of Global Industries

 Differences in prices and costs among
countries due to
 Currency exchange fluctuations
 Differences in wage and inflation rates
 Other economic factors
 Differences in buyer needs across countries
 Differences in competitors and ways of

competing among countries

 Differences in trade rules and governmental

regulations across countries

 29

Strategic Options: Pursuing Global Market Coverage

1.
1. License
License foreign
foreign firms
firms to
to produce
produce and
and
distribute
distribute aa firm’s
firm’s products
products

2.
2. Maintain
Maintain aa domestic
domestic production
production base
base and
and
export
export products
products

3.
3. Establish
Establish foreign-based
foreign-based plants
plants and
and
distribution
distribution in
in foreign
foreign countries
countries
 30

Strategic Options: Choosing a Generic Competitive Strategy

1.
1. Broad-line
Broad-line global
global competition
competition

2.
2. Global
Global focus
focus strategy
strategy

3.
3. National
National focus
focus strategy
strategy

4.
4. Protected
Protected niche
niche strategy
strategy
 31

Grand Strategy Selection Matrix

Overcome weaknesses

Turnaround or Vertical integration

retrenchment Conglomerate diversification
Divestiture
Internal Liquidation External
(redirected II I (acquisition
resources or merger for
within the III IV resource
firm) capability)
Concentrated growth Horizontal integration
Market development Concentric diversification
Product development Joint venture
Innovation

Maximize strengths
 32

Model of Grand Strategy Clusters

Rapid market growth
1. Concentrated 1. Reformulation of
growth concentrated growth
2. Vertical integration 2. Horizontal integration
3. Concentric 3. Divestiture
diversification 4. Liquidation
Strong I II Weak
competitive competitive
position IV III position
1. Concentric 1. Turnaround or retrenchment
diversification 2. Concentric diversification
2. Conglomerate 3. Conglomerate diversification
diversification
4. Divestiture
3. Joint venture
5. Liquidation
Slow market growth
 33

Conclusion: Selecting a Business Strategy to

Achieve a Competitive Advantage
Focusing on key sources of
competitive advantage requiring
total, consistent commitment
Selection of
appropriate Weighing skills, resources,
business organizational requirements, and
risks of each source of
strategie(s)
competitive advantage
involves
Considering unique effects of the
generic industry environment on a
firm’s value chain activities
Chapter 4
Strategy Implementation
Inter relationship between strategy
formulation and implementation
 Some says it is one and same
 Some says it is distinctive
 The others says it is inter-related
 Successful strategy formulation does not guarantee
successful strategy implementation
 Strategy formulation is similar for different types
of organizations but strategy formulation varies
among different types & sizes of organizations
 Strategy formulation affects an organization from
top to bottom; it affects all the functional and
divisional areas of an organization
Strategic formulation
 It is largely an intellectual process and where as
strategic implementation is more operational
character (Fred David)
 Strategic formulation requires good conceptual,
integrative and analytical skills but strategy
implementation requires special skills in motivating
and managing others.
 Strategy formulation occurs primarily at corporate
level of an organisation while strategy
implementation is permeates all hierarchical levels.
 Both are interdependent
Nature of Strategy
Implementation
Formulation vs. Implementation
 Formulation positions forces before the action
 Implementation manages forces during the action

 Formulation focuses on effectiveness

 Implementation focuses on efficiency

 Formulation is primarily an intellectual process

 Implementation is primarily an operational process

 Formulation requires good intuitive and analytical skills

 Implementation requires special motivational and leadership skills

 Formulation requires coordination among a few individuals

=> Implementation requires coordination among many individuals
Nature of Strategy
Implementation
Examples of implementation activities
 Altering sales territories
 Adding new departments
 Closing facilities
 Hiring new employees
 Cost-control procedures
 Modifying advertising strategies
 Building new facilities
Nature of Strategy
Implementation
Management Perspectives
 Shift in responsibility

Division or
Strategists Functional
Managers
 A TALE OF TWO STORES
 Experts
 Rapid growth, believe
 Sears
driven by end- Sears way
launch  Takes  Financial
based was the  Acquired
es control of trouble;
locations and only way to by KMart
catalog production sells off all
company- compete
busine and non-retail
controlled “The
ss distribution businesses
factories paragon of
retailers”

 1970

 1891  1924  1960  1980

 1990
 2000
 2005

 Moves into on-  Expands into banking, A Firm’s

premise investments, real estate performanc
retailing/General services, and insurance e
Robert Wood takes is directly
over related to
 Dizzy  Perfects model; grows; the quality
 Sam Walton opens ing expands into new of its
first Wal-Mart with growt markets (international) strategy and
focus on low- h and store concepts its
prices (Sam’s clubs) competency
in
implementin
g it

 1962
 1970
 1980  2000

 30 stores located in  Invests $500 million

“one-horse towns in inventory
which everybody management
else was ignoring”; technology
Sam Walton
Strategy Implementation

• Sears example

 In 1983 Sears implements one-stop shopping banking-financial

services power.
 Sears retail unit fell to #3 behind low-cost providers (Walmart
and K-Mart).

 Specialty retailers (focused differentiators) such as The Gap,

The Limited, Toys-R-Us, and Kids-R-Us took market share.
 Sears was outperformed by both low-cost and focused differentiators.

 Sears initiated restructuring in 1992 after losing $3.8 billion.

Strategy Implementation

• Sears example

 What happened? Why did Sears fail so dramatically?

- Lost ability to control core business (too diversified).

- Resources were taken from retail and given to new ventures.

- Managers spent too much time on diversified businesses.

- Managed retail segment using financial controls.

- Sears suffered from post-merger drift.

- Lost operational understanding of the competitive dynamics
in the retail industry.
 TWO RETAILERS AT A GLANCE

 Sears  Wal-Mart
 Year founded  1891  1962

 600
 Stores 1980  864
• 5289
• Stores 2004 • 2026

 $1,643 million
 Revenues 1980  $25,194 million
• $285,222 million
• Revenues 2004 • $36,100 million

 Net profits 1980  606M (2.4% return on sales)  $55 M(3.3% return on sales)
• Net profits 2004 • 507M (-1.4% return on sales) • $10,267 M
• (3.6% return on sales)

 Market capitalization 1980  USD 4.8 billion  USD 1 billion

• Market capitalization 2004  USD 12.2 billion  USD 200.2 billion
 A TALE OF TWO RETAILERS – PERFORMANCE MEASURES

 USD millions
 THREE OVERARCHING THEMES

 Implementing a 
To
 Strategic
succeed,
good strategy is at leadership is
the formulation
least as important Firms and responsible for
as creating one, industries are of a good strategy
yet many dynamic in and its implementa-
tion should be
 making
managers give nature
inextricably substantive
too little thought to resource
implementation connected
allocation
decisions and


Strategicleader-
 developing key-
ship is essential if a firm stakeholder
is able to both formulate support of the
and imple-ment strategy
strategies that create
value

 We need to see a firm’s competitive position, not as a snapshot,

but as an ongoing movie
STRATEGY

 Strategos: “the general’s view”

 Holistic “big picture”

 General

 Lower officer (e.g.,

supply logistics  Tactical details
infantry, heavy
armored vehicles)
 THE STRATEGIC MANAGEMENT PROCESS

 Strategic
analyses
 Internal

 External

 Strategy
 Vision and  Arenas
mission  Vehicles  Implementat
 Differentiators ion levers
 Fundamenta  Staging
l
organization  Economic logic  and
al purpose
 The central,
 Organizatio integrated, externally  Strategic
nal values oriented concept of leadership
how a firm will
achieve its
objectives
 QUESTIONS OF CORPORATE-LEVEL AND BUSINESS-LEVEL STRATEGY

Unit of measure

 Corporate-level strategy should ask

?
 In which markets do we compete
today?
 In which markets do we want to
compete tomorrow?
 How does our ownership of a
business ensure its
competitiveness today and in the Business-level strategy should ask`

?
future?
 How do we compete in this
market today?
 How will we compete in this
market in the future?
 STRATEGY AND IMPLEMENTATION ITERATE  WAL-MART EXAMPLE

 Compete as  Leverage inventory

 Strategy discount and sourcing
retailer in systems to be low-
:
rural cost leader
 The markets
process of
deciding
what to do

 Implementati
on:
 The process of
performing all the
activities
 Invest heavily in
necessary to do organizational
what has been structure, systems,
planned and processes
 UNPLANNED ACTIONS CAN DRIVE
STRATEGY
 Intel’s original
focus (1970s &
1980s)
 By 1984, 95%
 Design and
of Intel
manufacture of  Focus on revenue came
Dynamic, Random- micro- from the
Access Memory processor microprocess
Chips (DRAM) segment or segment

 Unplanned
experimenta
l venture to
make
microproces
sors for
Busicom, a
Japanese
calculator
maker
 BUSINESS STRATEGY DIAMOND
 Arenas
 Where will we be active?
( and with how much
emphasis?)
 Which product categories?
 Which channels?
 Arenas  Which market segments?
 Which geographic areas?
 Which core technologies
 Which value-creation
 Staging strategies?

 What will be our speed  Vehicles


Staging Economic
and sequence of   Vehicles
moves? logic  How will we get there?
 Speed of expansion?
 Internal development?
 Sequence of initiatives
 Joint ventures?
 Licensing/franchising?
 Experimentation?
 Economic logic  Acquisitions?
 Differentiators
 How will returns be
obtained?  Differentiators
 Lowest costs through
scale advantages?
 How will we win?
 Lowest costs through  Image?
scope and replication  Customization?
advantages  Price?
 Premium prices due to  Styling?
unmatchable service?  Product reliability?
 Premium prices due to  Speed to market?
proprietary product
features?
 JET BLUE STRATEGY

 Low fare commercial air carrier

 Arenas  Underserved but over-priced US cities

 Start from scratch and achieve all growth

 Vehicles internally (i.e., do not purchase a regional airline)
Objective
To “bring  High level of service compared to low fare
Humanity Differentiators competitors (e.g., leather seating, satellite TV)
back to air
travel”
 Grow from one route between two cities to serving
 Strategy 20 cities in just 3 years

 Secure cost advantage by being willing and able

Economic logic to perform key tasks differently
 One type of plan
 JFK home base
 Secondary location
GOALS OF STRATEGY IMPLEMENTATION

To make sure strategy

1
formulation is comprehensive and
well informed

To translate good ideas into

2

actions that can be executed (and

sometimes to use execution to
generate or identify good ideas)
IMPORTANCE OF EXECUTION

 “The important decisions, the

decisions that really matter, are
strategic . . . [But] more
important and more difficult is to
make effective the course of
action decided upon.”
 – Peter Drucker
FRAMEWORK FOR STRATEGY
IMPLEMENTATION

 Key Factors of Strategy Implementation

 Implementation levers
 Organizational structure
 Systems and processes  Realized
 Intended  People and rewards  and
 Emergent
 Strategy  Strategies
 Strategic leadership
 Lever- and resource-allocation
decisions
 Decision support among
stakeholders
 IMPLEMENTATION LEVERS
Implementation
levers Description
 Structure is the manner in which responsibilities, tasks, and
Organizational
people are organized. It includes the organization’s authority
structure structure, hierarchy, units, divisions, and coordinating
mechanisms

 Systems are all the organizational processes and procedures

Systems and used In daily operations. These include control and incentive
processes systems, resource‑allocation procedures, information systems,
budgeting, and distribution

 The people and rewards lever points to the importance of using

all organization members to implement a strategy. Competitive
People and advantage is generally tied to your human resources. Successful
rewards implementation depends on having the right people and then
developing and training them in ways that support the firm’s
strategy. In addition, rewards – how you pay your people – can
accelerate the implementation of your strategy or undermine it
COMPETITIVE ADVANTAGE

 Competitive
Advantage:  Key
a Firm’s question:
ability to how do
create value Firms create
in a way that sustained
its rivals above-
cannot average
returns?
 THREE PERSPECTIVES OF COMPETITIVE ADVANTAGE

 Internal  External  Dynamic

 Often called the  Also called the  Suggests that in

“resource view”, “positional view”, dynamic, rapidly
contends that firms are contends that variations changing markets, a
heterogeneous bundles in a firm’s competitive firm’s current market
of resources and advantage and position is not an
capabilities and firms performance are accurate prediction of
with superior resources primarily a function of future performance.
and capabilities enjoy industry attractiveness. Instead, we look at the
competitive advantage Companies should past for clues about how
over other firms. This therefore either (1) the firm arrived at its
advantage makes it position themselves to current position and to
relatively easier to compete in attractive future trends – both
achieve consistently industries or (2) adopt internal and external –
higher levels of strategies that will make in an effort to predict the
performance their current industries future landscape
more attractive
So…..

1 Understand what a strategy is and identify the difference

between business-level and corporate-level strategy

2 Understandthe relationship between strategy formulation

and implementation

3 Describe the determinants of competitive advantage

4 Recognizethe difference between a fundamental and a

dynamic competitive advantage

5 Understand why we study strategic management

Management Issues

Annual Objectives

Policies

Resources
Management
Issues Organizational structure

Restructuring

Rewards/Incentives
Management Issues: Annual objectives
-- Decentralized activity
-- Directly involve all managers in the
organization

Purpose of Annual Objectives --

Basis for resource allocation
Mechanism for management evaluation
Metric for gauging progress on long-term objectives
Establish priorities (organizational, division, &
departmental)
Management Issues:
Issues Annual objectives
Consistency of Annual Objectives --

Across hierarchical levels

Horizontally consistent
Vertically consistent
Management Issues:
Issues Annual objectives
Requirements of Annual Objectives
Annual Objectives: Should State:
Measurable
Quantity
Consistent
Quality
Reasonable
Challenging Cost
Clear Time
Understood Be Verifiable
Timely
Management Issues (cont’d)

Resistance to Change

Natural Environment

Supportive Culture
Management
Issues Production/Operations

Human Resources
Management Issues: Structure

Matching Structure with Strategy

Changes in strategy = Changes in
structure

 Structure dictates how objectives &

policies will be established
 Structure dictates how resources will
be allocated
Chandler’s Strategy-Structure
Relationship

Organizational
New strategy New administrative
performance
Is formulated problems emerge
declines

Organizational
New organizational
performance
structure is established
improves
Management Issues: Structure

Basic Forms of Structure

 Functional Structure
 Divisional Structure
 Strategic Business Unit Structure (SBU)
 Matrix Structure
Strategy Implementation

 Organization Structures

• Simple Structure
 Owner-manager makes decisions.
President  Little specialization of tasks.
 Few rules, little formalization.
 Advantages:

- Provides high flexibility

Employees - Rapid product introduction
- Few coordination problems
 Organization structure

• Functional structure

President
Legal
Accounting
Affairs

HRM Finance Marketing R&D Production

Strategy Implementation
 Organization structure

• Functional structure

 Advantages

- Centralized control of operations

- Promotes in-depth functional expertise
- Enhances operating efficiency where tasks are routine

 Disadvantages

- Functional coordination problems

- Inter-functional rivalry
- Overspecialization and narrow viewpoints
- Hinders development of cross-functional experience
- Slower to respond in turbulent environments
 Organization structure

• Product-divisional structure

President
Government Legal
Affairs Affairs

Corporate
Corporate Strategic Corporate Corporate
Human
R&D Lab Planning Marketing Finance
Resources

Product Product Product Product Product

Division Division Division Division Division
 Strategy Implementation
 Organization structure

• Product-divisional structure

 Organization based on products versus functions

 Each division is a separate business in which day-to-day

decisions are delegated to divisional managers.

 Divisions are managed using strategic controls – detailed

knowledge of firm operations allows managers to remain actively
involved.
 Overdiversification leads to inability to process detailed information
and a reliance on financial controls to evaluate managers.
 Strategy Implementation

 Organization structure

• Product-divisional structure

 Advantages

- Decentralized decision making

- Each business is organized around products
- Puts profit/loss accountability on managers
- Facilitates rapid response to environmental changes
- Allows efficient management of a large number of units

 Disadvantages

- May lead to costly duplication of functions

- Inter-divisional rivalry
- Corporate managers may lose in-depth understanding
 • Matrix Structure President

R&D Production Marketing Finance

Business Specialists Specialists Specialists Specialists

Project

Business Specialists
Specialists Specialists Specialists
Project

Business
Specialists Specialists Specialists Specialists
Project
 Strategy Implementation

 Organization structure

• Matrix structure

 Contains aspects of both functional and product-divisional

structures.
 Advantages:
- Creates checks and balances between competing viewpoints
- Promotes holistic view of the firm
- Encourages cooperation and consensus building
 Disadvantages:

- Very complex and costly

- Shared authority increases communication time
- Difficult to respond rapidly
- May promote bureaucracy and reduce innovation (in large firms).
 Strategy Implementation
• Network structure
 Group of firms combine resources to
achieve together what they can’t achieve
alone.

Partner Partner  Advantages:

- Firm’s emphasize their own core
competencies
- Rapid response time
- Very flexible
Focal
- Reduces capital intensity
Firm
 Disadvantages

- Asymmetric information
- Technology expropriation

Partner - Trustworthiness of partners

Partner
- Asset hold-up
Management Issues

Annual Objectives

Policies

Resources
Management
Issues Organizational structure

Restructuring

Rewards/Incentives
Management Issues: Restructuring

Restructuring often involves reducing

the size of the firm, number of
employees, divisions and/or units, and
the number of hierarchical levels

Downsizing
Rightsizing
Delayering
Management Issues: Restructuring

Reengineering: Reconfiguring or redesigning work,

jobs, and processes to improve cost, quality, service,
and speed

Process management
Process innovation
Process redesign
Management Issues

Annual Objectives

Policies

Resources
Management
Issues Organizational structure

Restructuring

Rewards/Incentives
Management Issues:
Pay/performance linkage
Linking Pay/Performance to Strategies
involves the question: how can an
organization’s reward system be more
closely linked to performance?

Dual bonus systems: short-/long-term

Profit sharing systems: direct linkage to profitability
Gain sharing systems: linkage to achievement of
targets and/or exceeding them
Tests for Performance-Pay Plans
Does the plan capture attention?

Do employees understand the plan?

Is the plan improving communication?

Does the plan pay out when it should?

Is the company or unit performing better?

82
Management Issues (cont’d)

Resistance to Change

Natural Environment

Supportive Culture
Management
Issues Production/Operations

Human Resources
Management Issues: managing
resistance to change
Resistance to change is the single
greatest threat to successful strategy
implementation
Change raises anxiety or fear concerning:
Economic loss
Inconvenience
Uncertainty
Break in status-quo
Management Issues:
Issues managing
resistance to change

Change Strategies

Force Change Strategy

Educative Change Strategy
Rational or Self-Interest Change
Strategy
Management Issues (cont’d)

Resistance to Change

Natural Environment

Supportive Culture
Management
Issues Production/Operations

Human Resources
Management Issues: Natural
environment
-- Wide appreciation for firms that “mend”
rather than “harm” the environment
Natural Environment – Environmental
Strategies:
Develop/acquire “green” businesses
Divesting environmental-damaging business
Low-cost producer through waste minimization
& energy conservation
Management Issues (cont’d)

Resistance to Change

Natural Environment

Supportive Culture
Management
Issues Production/Operations

Human Resources
Management Issues

Strategy-Supportive Culture

Preserve, emphasize, and build upon

aspects of existing culture that support
new strategies
Management Issues: Supportive culture
Elements linking culture to strategy:

• Formal statements of philosophy, charters, etc. used for

recruitment and selection, socialization
• Designing of physical spaces, facades, buildings
• Deliberate role modeling, teaching and coaching
• Explicit reward and status system, promotion criteria
• Stories, legends, myths about key people and events
• What leaders pay attention to, measure and control
• Leader reactions to critical incidents and crises
• How the organization is designed and structured
• Organizational systems and procedures
• Criteria used for recruitment, selection, promotion, retirement

90
Management Issues (cont’d)

Resistance to Change

Natural Environment

Supportive Culture
Management
Issues Production/Operations

Human Resources
Management Issues:
Production/operations concerns
Production processes typically constitute
more than 70% of firm’s total assets
Production/Operations Decisions:
Plant size
Inventory/Inventory control
Quality control
Cost control
Technological innovation
Management Issues (cont’d)

Resistance to Change

Natural Environment

Supportive Culture
Management
Issues Production/Operations

Human Resources
Management Issues

Human Resource Concerns

HR manager position has strategic

responsibility and has changed
dramatically as companies continue to
reorganize, outsource, etc.
Management Issues
Human Resource Strategic Responsibilities

Assessing staffing needs/costs

Developing performance incentives
ESOP’s
Child-care policies
Work-life balance issues
Benefits of a Diverse Workforce
 Improves corporate culture
 Improves employee morale
 Leads to a higher retention of employees
 Leads to easier recruitment of employees
 Decreases complaints and litigation
 Increases creativity
 Decreases interpersonal conflict
 Enables the organization to move into emerging markets
 Improves client relations
 Increases productivity
 Improves the bottom line
 Maximizes brand identity
 Reduces training costs