MQM485: Advanced Organizational Strategy

1. MQM485: Advanced Organizational Strategy Prof. Elango MQM485/Sp09/Class1

2. Activities for Today • Introduction to Strategic Management • Introduction by Professor • What is Strategy • Syllabus Review • Content • Grading • Attendance Policy/Seating Chart • Introduction by Students/Attendance • BREAK • What do Managers Know Anyway? (Mezias/Starbuck) • Honda Effect • Other • Seating Chart (Attendance) • Sign-up for CEP • Return Completed Student Information Sheet • Homework (Chapter 2; Group Contract Due; Strategic Intent (Hamel and Prahalad) [ML]; Mini-Case: The Rise and Fall of the J. Peterman Company [ML])

3. Strategy Defined • Several definitions exist to contextualize strategy. Some alternatives include: • A plan: a deliberate scheme chosen by a firm to attain its goal after examining several alternatives • A process: a series of decisions and actions that align a firm’s strengths to industry opportunities and threats • A pattern: what a firm consistently does • A position: a market position that generates advantages over rivals • A ploy: a maneuver intended to outwit, confuse, or fool the enemy • Strategy is a set of decisions and actions that managers take to attain superior company performance relative to rivals.

4. Definition of Strategy Strategy: A firm’s theory about how to gain competitive advantage

5. Competitive Advantage Competitive advantage is an edge a firm has over rivals, produced by a favorable market position or an internal resource or capability. It is a strength that few or no rivals in the industry possess. The benefit competitive advantage bestows on a firm is the potential for earning superior profits. A firm is deemed to be successful when it earns above-average profits in its industry. The relative position to competitors is important, not the profitability figure itself.

6. What is Strategy -Porter? • Operational Effectiveness is Not Strategy • Necessary but not Sufficient • Strategy Rests in Unique Activities • Perform activities differently than rivals • Positioning • Variety Based • Needs Based • Access Based • Broad or Narrow • Strategy is a Unique and Valuable position, involving different set of activities • If there was one ideal position, then there would be no need for strategy

7. What is Strategy? • Sustainable Strategic Position Requires Tradeoffs • Need to Choose and Limit Your Offerings • Fit Drives Both Competitive Advantage and Sustainability • Simple Consistency (image) • Activities are Reinforcing • Optimization of Effort (coordination & control) • Rediscovering Strategy • Strategic Managers Job • DEFINING POSTION • MAKING TRADEOFF • FORGING FIT

8. The Strategic Management Process External Analysis Strategic Choice Strategy Implementation Competitive Advantage Mission Objectives Internal Analysis

9. Challenge of Strategic Management Only 15 (was 16 till couple of months ago) of the 100 largest U.S. companies at the start of the 20th century are still identifiable today! Competitive success is transient...unless care is taken to preserve competitive position

10. The Strategic Management Process & Competitive Advantage Strategy Matters! Strategy is often the difference between: • success and failure, between mediocrity and excellence • a great manager and average managers • stumbling through life and moving ahead with purpose

11. The Strategic Management Process Applying Strategy to Your Career • a solid understanding of strategy concepts will help set you apart from other job candidates • you can use the process to identify and exploit difference between you and others • you can use the process to determine if you want to stay with a company

12. The Strategic Management Process Summary This course is not about mere survival, it is about thriving—achieving competitive advantage • the strategic management process helps managers achieve competitive advantage • competitive advantage depends on differences • strategy is about discovering and exploiting these differences

13. Prof. B. Elango, Ph.D. • Office Phone: 309 438 5930 • E-Mail:elango@ilstu.edu • Web: http://www2.cob.ilstu.edu/elango/ • Password: f9mqm485 (write down the password) • Office Location:345 • Office Hours: • Monday 09.30 a.m. to 11.00 a.m. • Tuesday 02.00 p.m. to 03.30 p.m.

14. INTRODUCTION • I see my role as an instructor of this class is to “. . . facilitate learning . . .” • What to expect from me • Learning & Critical Thinking Skills (see class objectives) • Organized and Structured • Current and Knowledgeable • Offer Feedback (which is direct**) ** this is perceived as being unfriendly but it is not the intent. • What I expect from you • Stay current and focused on class activities • Participate in class discussions • Cooperate/Collaborate • Professional

15. INTRODUCTION • Philosophical Bent • You are here to learn. • Treat you with integrity/trust/respect and I hope you will do the same. • I will seek and attempt to modify the class based on student feedback within reason. • I understand your time is precious – will do my best -- but a discount strategy is not a good strategy. • I do not see the current students as a customer but as a important stakeholder (internal stakeholder) of the university. • I see both faculty and students as a team – seeking to impress prospective employers, and donors/ taxpayers (external stakeholders -- who could be seen as customers in the traditional business sense).

16. What Do Managers Know, Anyway? (Mezias and Starbuck) • Top Management’s Perception – Objective Reality (zero or negative correlation) • 50% Wrong and Average Error = 300% (some by 1000%) • Managerial Hubris • Senior Mangers (or “The Clueless and TQM”) • Cannot Read Q-Reports • 50% of the Mark • Q-Specialist: Precise but Incorrect (Joke: Should we read footnotes?) • Busy among Trees – Losing Sight in the Forest • Fighting Fire Vs. Important Things • Efficiency Vs. Effectiveness • Bill Gates (640K & Net’s Future) • What do we learn from this article? • Strategy does not require total precision but…reasonable assumptions! • Assumptions which do not distort world view • Willing to Accept you are Wrong! (this will happen often) • Modify – Use of Feedback (Plugging Holes Quickly)

17. The Honda Effect • Strategy: • Selecting Opportunities (markets/products) • Discrete Decisions to Invest Resources • Conventional (Naïve) Strategy Model • Driven by Senior Management • Models and Concepts • Rationality • Simplified Linear Model • Organizational Process Model • Process of Strategy Making • Miscalculation • Serendipity (good or bad luck, others stupidity, etc.,) • Organizational Learning

18. Key Lessons of Honda Effect • Understanding that the Process of Strategy Making is Important • Strategy is not generated from Bold Insights or Big-Brains • Need to be Humble Enough to Use Little Brains • Incremental – Adaptive – Persistence (commitment) • Ability of the Organization to Use Information • Top Management Task  Guiding and Orchestrating rather than Directing • Strategy is “all things necessary for successful functioning of organization as an adaptive mechanism”

19. Deliberate and Emergent Strategies Source: H. Mintzberg and A. McHugh, “Strategy Formulation in an Adhocracy,” Administrative Science Quarterly, 30, no.2 (1985): 160-197.