The Concept of Strategy

The Concept of Strategy Christian Grandorf Allen Hicks Alex Raney Braden Walker Anthony Brown

Strategy • A unifying theme that gives coherence and direction to the actions and decisions of an individual or an organization. • Strategy is NOT a detailed plan or program of instructions

Lady Gaga • Produced and maintains her ‘brand’ • Emphasizes her image as a part of her strategy • Made her fans or ‘monsters’ part of her strategy

James Dyson • Success was not immediate, Dyson relied on himself, the teachings of others, and constant persistence • Explored different markets than his home in order to get his idea off the ground • Moved production from UK to Malaysia to reduce costs • 5000 prototypes before ‘dual cyclone’

Alex Ferguson • Revolutionary approach to teambuilding paved the way for long term success • Scouting was extended globally rather than locally • Focused on Team rather than individuals • Team rotations based on who worked best, planning for individual opponents in a whole new way, focused on strengths and weaknesses of opposing teams

Four Common Factors • Goals that are simple, consistent, and long term. • Profound understanding of the competitive environment. • Objective appraisal of resources. • Effective implementation.

Origins of Strategy • Enterprises need business strategy for the same reasons militaries need strategy • To give direction and purpose • To use resources effectively • To coordinate decisions

Origins of Strategy • Derived from the Greek word strategia, meaning generalship • First evidence of strategy came from Sun Tzu’s Art of War

Strategy vs. Tactics • Tactics are a scheme for a particular action • Win battles • Strategy is the over all plan • Win the war • Three characteristics of strategy • They are important • They involve a commitment of resources • They are not easily reversible

Dyson Case 1.2 • Dyson’s decision to move the bag less to Malaysia • Moving to Malaysia is not easily reversible, therefore it is a strategy • Dyson’s decision to sue Hoover for patent infringement • A law suit is reversible, therefore this was a tactic • The outcome was important, and required significant resources

The Evolution of Business Strategy • Corporate planning was developed in the 1950’s • Macroeconomic forecasting provided the foundation • Typically five year plans were made • Strategic management evolved from corporate planning • Oil shocks of the 70’s caused macroeconomic instability • Firms couldn’t plan five years ahead • Involved an increased focus on competition

The Resource Based View • 1990’s marked a shift from external profits to sources of profit within the firm • Competing for new markets vs. differentiation

What is Strategy? • A plan, method, or series of actions designed to achieve a specific goal or purpose. -Wordsmyth Dictionary • The determination of the long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. -Alfred Chandler, Strategy and Structure • Strategy is the pattern of objectives, purposes, or goals and the major policies and plans for achieving these goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be. -Kenneth Andrews, The Concept of Corporate Strategy

Quest for Success • The conception of strategy has changed a lot in the last half century. • Strategy as a plan Strategy as a direction • In an environment of uncertainty and change, a clear sense of direction is essential to the pursuit of objectives.

Corporate vs. Business • Corporate Strategy- defines the scope of the firm in terms of the industries and markets in which it competes. Corporate strategy decisions include investment in diversification, vertical integration, acquisitions, and new ventures; the allocation of resources between the different businesses of the firm; and divestments. • Business Strategy- Is concerned with how the firm competes within a particular industry or market. If the firm is to prosper within an industry, it must establish a competitive advantage over its rivals.

Distinction Between the two • Every firm must answer, How do we make money? The answer relies on these two questions: • Where should we compete? • Which industries and markets? • How should we compete? • The difference between corporate and business strategy comes down to the organizational structure. • Corporate Strategy relies on the top management team and Business Strategy falls on the divisional management. • This book focuses on business strategy because a company’s success relies on competitive advantage.

Identifying Strategy • Strategy is located in 3 places: • In the heads of the chief executive and senior managers • In top management team’s articulations of strategy (speeches and documents) • In the decisions through which strategy is enacted • A business’s games plan should comprise 3 components of strategy: • Objectives, Scope (where we will compete), and Advantage (how we willcompete)

How is Strategy made? • Strategy is the result of managers engaging in deliberate, rational analysis, or is it? • Strategy may also emerge through adaptation to circumstances. • Henry Mintzberg is a leading critic of rational approaches to strategy design. • He distinguishes intended, realised, and emergent strategies.

Quote • “The notion the strategy is something that should happen way up there, far from the details of running an organization on a daily basis, is one of the great fallacies of conventional strategic management.”

How is Strategy made? • Strategy is continually enacted through decisions that are made by every member or the organization. • In all the companies we are familiar with, strategic planning combines design and emergence – a process the Grant has referred to as planned emergence. The balance between the two depends greatly on stability and predictability of a company’s business environment.

What roles does Strategy perform? • Strategy as decision support • Strategy as a coordinating device • Strategy as target • Strategy as animation and orientation

Strategy as Decision Support • Strategy simplifies decision making by constraining the range of decision alternatives and by acting as a heuristic(rule of thumb) which reduces the search to find a solution. • Permits the knowledge of different individuals to be pooled and integrated. • Facilitates the use of analytic tools.

Strategy as a Coordinating Device • It’s a communication device • Provides a forum in which views are exchanged and consensus developed. Once formulated, the implementation of strategy through goals, commitments and performance targets that are monitored over the strategic planning period also provides a mechanism to ensure forward movement in a consistent direction.

Strategy as Target • Establishes a direction of the firms development and sets aspirations that can motivate and inspire the members of the organization. • Ambitious goals are good.

Strategy as Animation and Orientation • Animates and orientates individuals within organizations so that they are mobilized, encouraged, and work in concert with each other to achieve focus and direction.

In whose interest? • Profit is defined as a surplus of revenues over costs and represents that that part of the value created by the firm that is available for distribution to its owners. • Every company’s goal is to produce a profit and that profit goes to its owners; who are the shareholders and stakeholders of the company.

Kraft takeover Cadbury • http://www.youtube.com/watch?v=2suHFP20Pm4#t=54

Profit and Purpose • There is more to business than just making money. • The pursuit of profit often fails to realize its goal. • Managers need to know what determines profit, • Managers must be able to motivate • A sense of purpose.

Corporate Social Responsibility • What are a company’s obligations to society as a whole. • Unethical and undesirable?

Accepting responsibility • William Allen • “Firm as property” • “Firm as social entity”

Narrowing the focus • The focus in this book are on private sector firms operating in market economies assuming that the firms owners are looking to maximize profits in the long run. • Competition • The market for corporate control • Convergence of stakeholder interests • Simplicity

The basic framework for strategy analysis

Strategic fit • For a strategy to be successful, it must be consistent with the firm’s external environment and with its internal environment – its goals and values, resources and capabilities and structure and systems.

Summary

Questions?

The Concept of Strategy