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STRATEGIC MNGT FOUNDATIONS

UNIT 1: THE CONCEPT OF


STRATEGY

STRATEGIC
MANAGEMENT

COMPETITION AND SECTOR


ANALYSIS
UNIT 2: ENVIRONMENTAL ANALYSIS
UNIT 3: SECTOR ANALYSIS
UNIT 4: RESOURCES AND CAPAB ANALYSIS
UNIT 5: SOURCES AND NATURE OF CA

COMPETITIVE ADVANTAGE
ANALYSIS
UNIT 6: COST ADVANTAGE
UNIT 7: DIFFERENTIATION ADVANTAGE

Prof. Jose Luis Barbero

UNIT 1: THE CONCEPT OF STRATEGY


1. INTRODUCTION AND OBJETIVES
2. THE ROLE OF STRATEGY IN SUCCESS
3. THE DEVELOPMENT OF A BUSINESS STRATEGY
* Origins and military antecedents.
* Towards a general theory of strategy?
* The development of business analysis
4. THE ROLE OF COMPETITION AND THE SEARCH OF THE COMPETITIVE
ADVANTAGE

5. THE STRATEGIC PROCESS


* Deliberate and emergent strategies
* Strategy as art
* The multiple roles of strategy
6. THE ROLE OF THE ANALYSIS IN STRATEGIC FORMULATION

INTRODUCTION AND OBJECTIVES


TRIUMPH
SUCCESS

STRATEGY
TO GIVE CONSISTENCY
AND COHERENCE TO
individual decisions
NOT A DETAILED PLAN
http://www.youtube.com/watch?v=ibrxIP0H84M
http://www.youtube.com/watch?v=mwc073nNl3Q

STRATEGY
STRATEGY

SUCCESS
SUCCESS

OBJETIVE OF A STRATEGY: TO FACILITATE BUSINESS SUCCESS,


GUIDING EXECUTIVE DECISION TO THE CREATION AND KEEP OF A
COMPETITIVE ADVANTAGE

A STRATEGY IS THE LONG TERM ORIENTATION


AND SCOPE OF AN ORGANISATION, BY WHICH
RESOURCES ARE ADJUSTED TO THE
CHANGING ENVIRONMENT, AND
SPECIFICALLY TO THE MARKETS AND CLIENTS
SO THAT THE STAKEHOLDERS EXPECTATIONS
ARE MET

THE ROLE OF STRATEGY IN SUCCESS


KEY TO SUCCESS (Madonna and El Corte Ingls) is the
presence of a STRATEGY SOLIDLY FORMULATED AND
EFFICIENTLY IMPLEMENTED
A CONSISTENT DIRECTION based on A CLEAR
VISION of the rules of the game
Master lines to compete and reach an ADVANTAGEOUS
POSITION.

A FIRMS STRATEGY, FOLLOWED BY TOTAL


COMMITMENT DURING A LONG PERIOD OF TIME CAN
RESULT IN SUCCESS IN SPITE OF LIMITED RESOURCES.

THE ROLE OF STRATEGY IN SUCCESS


WHAT ARE THE CHARACTERISTICS OF A STRATEGY THAT
CONTRIBUTES TO SUCCESS?. FOUR CRITICAL ELEMENTS:
1. SIMPLE, CONSISTENT AND LONG TERM GOALS.
Excellent clarity in goals. All the other aspects are secondary to
pursue goals.
2. DEEP UNDERSTANDING OF THE COMPETITIVE ENVIRONMNENT.

Knowing the competitive environment: how to compete, what are


the weapons to compete in the sector or profession.
3. OBJECTIVE APPRAISAL OF RESOURCES.
Exploit internal strengths and protect weaknesses.
4. EFFECTIVE

IMPLEMENTATION.

Not only is it necessary a good formulation but an effective


implementation. Adequate structures, good communication and
coordination services.

THE DEVELOPMENT OF
A BUSINESS STRATEGY
A BUSINESS STRATEGY IS SOMETHING RELATIVELY RECENT, BUT ITS
ANTECEDENTS HAVE A MILITARY ORIGIN.

THE WORD STRATEGY COMES FROM THE GREEK WORD STRATOS,


MEANING ARMY, AND -AG, MEANING TO MANAGE.
MILITARY STRATEGY DRIVES TO NEW PERSPECTIVES
DISTINCTION BETWEEN STRATEGY AND TACTICS.

AS

THE

STRATEGY: GLOBAL PLAN TO ESTABLISH A FAVOURABLE POSITION


THROUGH THE RESOURCES DEPLOYMENT.(WIN A WAR)
TACTIC: A PLAN FOR A
BATTLE)

SPECIFIC

ACTION (MANOUVER TO WIN A

COMPETITION HAS DIFFERENT NATURE: THE GOAL IN A WAR IS TO BEAT THE


ENEMY,
BUSINESS IS NOT SO AGRESSIVE (+ COEXISTENCE)

TOWARDS A GENERAL THEORY


OF STRATEGY
STRATEGIC DECISIONS IN BOTH BUSINESS AND MILITARY CONTEXTS HAVE THREE
CHARACTERISTICS IN COMMON:

@ GREAT IMPORTANCE
@ SIGNIFICANT RESOURCES
@ NOT EASILY REVERSIBLE

The attempt to use military strategy theories in a business


environment took shape in 1994 with the publication of GAME
THEORY by Von Neuman y Morgenstern.
Game theory had a great impact on the analysis of
competition. The main elements of a general theory of
strategy was formulated, common to most of the competitive
situations: basics on negotiation, threats, mutual distrust,
balance between cooperation and conflict.

BUSINESS STRATEGY ANALYSIS DEVELOPMENT


END OF 50s, BEGINNING OF 60s: Interest in strategy in response to

problems in management of large and complex organisations. Coordination of the


individual decisions and global control of top management were the main problems.
In order to solve such, long term planning and annual budget started to be
formulated.

60s and 70s: Corporations became enthused with corporate planning. Such
enthusiasm was parallel to the governments economic and social planning. Planning
was performed via lineal programming, cost-benefit analysis,

Mid 70s: The Oil Crisis produces macroeconomic instability, diversification


strategies fail. Medium term plans need to be replaced with more flexible ones.

US corporations supremacy is threatened, interest shifts from diversification and


planning to COMPETITIVENESS NEED.---> CONSEQUENCE-->
CORPORATE PLANNING----> STRATEGIC MANAGEMENT

BUSINESS STRATEGY ANALYSIS DEVELOPMENT


Mid 70s:
Mintzberg accuses corporate planning of:
1. Prediction fallacy: The environment is intrinsically unpredictable.
2. Independence fallacy: Management is not an isolated department.
3. Formalisation fallacy: The lack of flexibility does not favour learning.
CORPORATE PLANNING FALLS--> STRATEGIC MANAGEMENT APPEARS
FOR 3 REASONS
1. INTEREST IN CREATING COMPETITIVE ADVANTAGES: To combine the

environmental vigilance and sector environment analysis, and internal resources


development.
2. REJECTION OF RIGID PLANS: FLEXIBILITY ACCEPTANCE
3. DISAPPOINTMENT OF THE ROLE OF PLANNING DEPARTMENTS: Return to planning

to management competencies as responsible for the implementation

BUSINESS STRATEGY ANALYSIS DEVELOPMENT

END OF 70s, BEGINNING OF 80s: Deeper knowledge of environment.


Main orientation of strategic management is sector analysis and competition.

Michael Porter: Research on profitability, PIMS analysis (strategy-profitability analysis) and


Boston Consulting Group (relation with market share, competitive advantage and
profitability).

END OF 80s, BEGINNING OF 90s: The focus is on internal aspects,


COMPETITIVE ADVANTAGE. Such depends on the exploitation of unique
internal resources and capabilities.
Attention of strategic management to dynamic aspects
of competitive advantage, the importance of innovation and
the central role of internal processes

http://www.youtube.com/watch?v=mwc073nNl3Q&NR=1

THE ROLE OF COMPETITION IN


COMPETITIVE ADVANTAGE

COMPETITION is the reason to have a strategy. The essence of a strategy


is the interdependence of competitors. The actions of one competitor affect
the result of other participants.

* Competition exists when the resources are limited and the objectives of
the competitors are incompatible. The difference between competition of
nature and that of human beings is STRATEGY.

THE ROLE OF COMPETITION IN


COMPETITIVE ADVANTAGE

STRATEGIC FORMULATION----> our priority will be the search of


the isolation of risks that derive from the competitive interactions
through the establishment of the COMPETITIVE ADVANTAGE
over the rivals.
If the content of this subject can be summarised in a leit motiv, it
would be:

IDENTIFY, ESTABLISH AND SUSTAIN


THE COMPETITIVE ADVANTAGE

V. THE STRATEGIC PROCESS:


CRITICS TO THE RATIONALIST PERSPECTIVE

OUR OBJECTIVE: STRATEGIC ANALYSIS

We start from this assumption: Management is able to


objectively assess the company and its environment to
formulate and implement an optimal strategy.
Main topic: STRATEGIC FORMULATION, although a well
formulated strategy should take into account the process
through which such will be implemented.
For example, IBM upon strategy formulation took into account:
organisational structure, management system, personnel, corporate
culture influencing employee behaviour and role perception.
In the rationalist perspective, formulation of strategy is limited to
top management, and lower level executives are involved in
implementation.
But such process is a fiction and becomes more diffused in practice, so
such dichotomy does not take place.

V. THE STRATEGIC PROCESS:


CRITICS TO THE RATIONALIST PERSPECTIVE
PROCESS OF STRATEGY FORMULATION (H. Mintzberg)
DELIBERATE STRATEGY: Rational formulation is top down. But it is

difficult that a strategy is the result of group decision.

+++Reflection of a complex political process of negotiation,


agreements, compromises and external manifestations.
EMERGENT STRATEGY: Strategy observed in the decision pattern by

the organisation-----> likely to substantially deviate from deliberate


strategy. Reasons for such deviations:

1. No CEO has all the information necessary to completely define explicitly


the strategy to implement.
2. No CEO has full control of the organisation---> Employees may act
differently from general lines dictated by the CEO.
3. Formulation is never limited to top management given that they do not
have the monopoly of good ideas and decisions.

V. THE STRATEGIC PROCESS:


CRITICS TO THE RATIONALIST PERSPECTIVE

PROCESS ORIENTED SCHOOL: How do strategies really arise?. How are


strategic decisions taken? What determines organisational change?.
STRATEGY AS ART: Mintzberg thought that the rationalist perspective
not only was a mistake but a poor manner of strategy making. Separation
between formulation and implementation makes learning difficult and must go
together.

OBJECTIVE OF OUR STUDY: A rationalist and analytical perspective

more than a crafted formulation. Ability, creativity, are essential


elements in a strategy, but the development of a strategy is a
MULTIDIMENSIONAL PROCESS which must include both the
RATIONAL ANALYSIS and intuition, experience and emotion.

MULTIPLE ROLES OF STRATEGY


STRATEGY AS A PROCESS--> THREE KEY MANAGERIAL TASKS:
1. STRATEGY AS DECISION MAKING SUPPORT:

Strategy provides coherence to individual decisions. Why is such coherence


necessary?---> BOUNDED RATIONALITY. E.I.: Chess ---> impossible to
consider and evaluate all logical options
2. STRATEGY AS A MEAN TO COORDINATE AND COMMUNICATE:

Strategy ----> common direction. The strategic process as a mechanism of


communication (dialogue among corporate managers divisions and general
directorsfunctional specialists), will provide necessary COORDINATION.
STRATEGY: Competitive position and distinctive competence

MISSION---- WHERE DO WE GO?------>


PURPOSE: Why does the company exist?.
VALUES: What does the company believe in.?
RULES AND BEHAVIOR: Support values and distinctive competencies.

MULTIPLE ROLES OF STRATEGY

3. STRATEGY AS A GOAL
WHERE DOES THE COMPANY WISH TO BE IN THE
FUTURE-------> Strategy joins MISSION + VISION. It
creates a direction that guides strategy formulation.
HAMEL Y PRAHALAD---> The crucial element of good
companies is the strategic intent, an obsession to obtain
leadership globally.
Traditional strategic formulation (internal resources and external
opportunities adjustment), does not lead to long term
competitiveness---> Business success (Virgin, music) is due to an
unstoppable ambition which produces an energy for innovation,
risk and permanent improvement.

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