Master of Business Administration BS7571: Strategic Decision Making Introduction to strategic management

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Master of Business AdministrationBS7571
Strategic Decision MakingIntroduction to
strategic management

• Dr Konstantinos Pitsakis

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Course Aims

1. To think strategically about the organisation,
   its stakeholders expectations, position and
   direction
2. To understand the linkages between the different
   aspects of the organization (esp. environment vs.
   internal strengths)

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Learning objectives for today

• Understand the basic vocabulary of contemporary
  strategy
• Understand the different strategy lenses
• Describe the characteristics of strategic
  decisions
• Recognize the different approaches to strategy
  development
• Explain the elements of the strategy model
  (position, choice, action)
• Understand what is required in case study analysis

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The Strategy Concept
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What?
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History lessons

• If you are ignorant of both your enemy and
• yourself, then you are a fool and certain to be
• defeated in every battle
• If you know yourself, but not your enemy, for
  every battle won, you will suffer a loss
• If you know your enemy and yourself, you will
  win every battle

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Vocabulary of Strategy
Term
Mission
Vision/strategic intent
Goal
Objective
Strategies
Business model
Control
Definition
Example
Overriding purpose in line with
values/expectations of stakeholders
Be healthy and fit
Desired future state aspiration of organization
Run a marathon
Lose weight, strengthen muscles
General statement of aim or purpose
Quantification or more precise statement of goal
Lose 5 kilos by 1 sept, run marathon
Excercise regularly, compete in other races
Long-term direction and steps to take
How product, service, and information flow
between participating parties
Associate with network (join running club)
Monitor weight, heartbeat, kilometres run and
times. If not ok, other strategies
Monitoring to assess effectiveness and modify as
necessary
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Different ways of viewing strategy

• Mintzberg et al (2008) Strategy Safari
• Mintzberg et al (2005) Strategy bites back!
• Mintzberg (1990) The Design School
  Reconsidering the basic premises of strategic
  management, SMJ, 11 171-195

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Different ways of viewing strategy

• The design school process of conception
• The planning school formalized process
• The positioning school analytical process
• The entrepreneurial school visionary process
• The cognitive school mental process
• The learning school emergent process
• The power school process of negotiation
• The cultural school collective process
• The environmental school reactive process
• The configuration school transformational
  process

What should happen
What does happen
The best way to see strategy
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A strategy is...

• the set of actions through which an
  organization, by accident or design, develops
  resources and uses them to deliver services or
  products in a way which its users find valuable,
  while meeting the financial and other objectives
  and constraints imposed by key stakeholders
• Most successful strategies give an organization
• some property that is unique, or at least rare
• the means for renewing its competitive advantage
  as the environment changes.
• So strategy answers one key question... what is
  it?

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Strategyor the choices organisations make
Culture
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Strategic decisions are

• BIG involve substantial change for substantial
  part of the organisation
• L_o_n_g timescale (normally 35 years)
• Involve commitment and trade-offs
• irreversible commitment of resources
• neglect some customers so as to satisfy others
  cant please everyone

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Three horizons for strategy
Horizon 3 gt create viable options
objectives
Horizon 2 gt build emerging business
Horizon 1 gt extend and defend core business
time (years)
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Strategy is not about forecasting the future and
its attendant pressures, rather it is about
understanding the future implications of todays
decision
Peter Drucker
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Why?
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Why do organizations need strategy?

• To agree a common purpose
• To give a sense of direction
• To allocate resources
• To measure performance
• To satisfy stakeholders

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Strategy for Competitive Advantage
Customers
value
Competitors
Company
Source Ohmae, (1983), 3 Cs
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Mintzberg, 1998
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Strategy according to H. Mintzberg

• Plan the "how a means of getting from here to
  there

Source Mintzberg, Strategy Safari, 2008
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Strategy according to H. Mintzberg

• Pattern a stream of decisions over time that
  results in a pattern of actions

Source Mintzberg, Strategy Safari, 2008
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Strategy according to H. Mintzberg

• Position choices about how a company and its
  offerings are positioned in the market place

Source Mintzberg, Strategy Safari, 2008
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Strategy according to H. Mintzberg

• Ploy a specific manoeuvre intended to outwit an
  opponent or competitor

Source Mintzberg, Strategy Safari, 2008
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Strategy according to H. Mintzberg

• Perspective A way of seeing the world

Source Mintzberg, Strategy Safari, 2008
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Source Mintzberg, Strategy Safari, 2008
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Strategic thinkers

• A. Chandler strategy drives structure
• I. Ansoff rational planning
• E. Penrose the theory of the firm and strategy
• M. Porter industry analysis
• G. Hummel strategy as revolution
• K. Weick strategy is sensemaking/sensegiving

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How do you make sense of things?
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Storytelling/ sensemaking giving

• Emails
• PowerPoint
• Bullet points
• Or
• Personal contact?

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Endogeneity??d????e?a

• W. Starbuck (1983) has argued, against overly
  rationalist views, that organizations are
  action-generators that dont plan and then do.
• Rather, in Starbucks view organizations act
  and do what they are good at, and then search for
  problems that look like a justification for their
  action

Mintzberg agrees!
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Where?
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Levels of Strategy (1)

• Corporate Level strategic decisions are concerned
  
• with what industries should we be in?
• Overall purpose and scope of business
• Portfolio issues to add long term value to
  shareholders investment
• Resource allocation between SBUs
• Structure and control of SBUs
• Corporate financial strategy

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Source Bloomberg BusinessWeek, What is Sony
Now?, November, 21-27, 2011
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Levels of Strategy (2)

• Strategic Business Unit (SBU) level strategy is
  concerned with how do we compete in the
  industries we are in?
• Competitive strategy
• Developing market opportunities
• Developing new products/services
• Resource allocation within the SBU
• Structure and control of the SBU

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Levels of Strategy (3)

• Operational or functional strategies are
  concerned with
• Implementing the overall strategy
• Acquiring the necessary resources and skills
• Aligning the resources, processes,
• people and skills to the strategy

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How?
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Strategy journey
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Multiple Processes of Strategy Development

• No one right way to develop strategy
• Processes of may differ over time and in
  different contexts
• Perceptions of how strategy develops will differ
• Senior executives see it as intended, rational,
  analytical and planned
• Middle managers see it as the result of cultural
  and political processes
• Managers in government organizations see it as
  imposed
• No one process describes strategy development
• Multiple processes at work

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Elements of Strategic Management

• Understanding the strategic position of an
  organization
• Making strategic choices for the future
• Turning strategy into action (Strategic Execution
  and Implementation)

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1. Strategic Position

• The Organization's Environment
• Political, Economic, Social, Technological,
  Environmental, Legal
• Sources of Competition
• Opportunities and Threats
• Strategic Capability of the Organization
• Resources and Competences
• Strengths and Weaknesses
• Expectations and Purposes
• Corporate Governance, Stakeholders, Ethics and
  Culture
• Sources of Power and Influence
• Communication of Purpose Mission and Objectives

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2. Strategic Choices

• Scope of activities at corporate level
• Portfolio management
• Market spread, e.g. international
• Value added by corporate parent (parenting)
• Innovation/entrepreneurship
• Directions and methods of development at business
  level
• Directions Product/Market
• Methods Internal/organic, MA, strategic
  alliances

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Strategy questions to be answered

• What results do you aim to achieve?
• What market opportunities will we exploit?
• What strengths will be used?
• What risks are there?
• What actions are required in the short longer
  term?
• What resources will be required?

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3. Strategy into Action

• Structuring the organization according to aims
• Marshalling resources people, info, finance,
  technology
• Managing change, renewal, repositioning,
  leadership

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So how do strategies develop?
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• Brilliant as its strategy may have looked after
  the fact, Hondas managers made almost every
  conceivable mistake until the market finally hit
  them over the head with the right formula
• Henry Mintzberg

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The strategy development process (Mintzberg
Walters, 1985)
Imposed elements to the strategy
The Plan!! Intended Strategy
Changes to the strategy
Realized Strategy
Unrealised elements of the Strategy
Emergent elements to the strategy
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Processes of Strategy Development

• Intended strategies
• Deliberate management intent
• Strategic planning systems
• Strategy workshops and project groups
• The role of strategy consultants
• Externally imposed strategy
• Emergent strategies
• Out of social political processes in around
  organizations
• Logical incrementalism
• Resource allocation routines
• Cultural processes
• Organizational politics
• Realized strategies
• Most realized strategies are a combination of
  both processes (Mintzberg)

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1. Intended strategy development

• Strategy is developed in a systematized manner,
  step by step, in chronological procedures
  involving different parts of the organization
• Structured means of analysis and thinking about
  complex strategic problems
• Organizes from the centre the resources required
  and their coordination
• Sets milestones to measure effectiveness
• Longer-term view of strategy
• Questioning and challenging received wisdom

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A Strategic Planning Cycle
Source R. Grant, Strategic Planning in a
Turbulent Environment, SMJ, 24 499, 2003
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Problems with Strategic Planning Systems

• Misunderstanding the purpose of planning
• Danger that strategy thought of as the plan
• Confusion between budgetary and strategic
  planning processes
• Obsession with search for the right strategy
• Documentation gives false appearance of a
  proactive approach
• Problems in design
• Line managers may cede responsibility to
  consultants
• no power to make things happen
• becomes an intellectual exercise
• Cumbersome process may result in not
  understanding the whole
• Can be over-detailed information overload
• Formalised and rigid systems can stifle ideas

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Strategy Workshops and Project Groups

• To reconsider or generate the intended strategy
  of the organization
• To challenge the assumptions of the current
  strategy
• To plan strategy implementation
• To examine blockages to strategic change
• To undertake strategic analysis
• To monitor the progress of strategy
• To generate new ideas and solutions

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Strategy Consultants

• Reasons for using consultants
• To get an external objective view of issues
• To cut through internal disagreements
• To symbolize the importance of the work
• Consultants roles
• Analyzing, prioritizing and generating options
• Knowledge carrier
• Promoting strategic decisions
• Implementing strategic change
• Beware the gurus! (see later lecture..)

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2. Emergent approach

• Strategies emerge through formalized routines and
  systems of the organization. How?
• Managers proposals competing for funds
• Day to day decision making about resource
  allocation across businesses
• Decisions may be made at a lower level than
  conventionally thought to be strategic
• Cumulative effects of such decisions guide the
  strategy

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Emergent strategy
I want our people to understand that what you do
in a strategic plan yesterday can be
appropriately discarded tomorrow, with no shame
and no blame, but rather a recognition that the
market place has changed, and therefore we have
to change.
Lawrence Bossidy, Ex-Chairman and CEO, Allied
Signal Inc.
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Logical Incrementalism (Quinn, 1989)

• Strategy develops through a process of
  experimentation
• learning from tests and limited involvement
  rather than
• big bang total strategies
• Managers have a generalized (not specific) view
  of future direction
• Cannot know environment but sensitive to
  signals via constant scanning
• Top managers utilize mix of formal/informal
  social and political processes to pull together
  emerging strategy pattern
• Develop strong, flexible core business and
  experiment with side bet ventures

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Overview of strategic management
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finally
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Case Study Analysis

• Use tools and techniques of strategic management
  for an actual business situation
• Analysis demonstrates complexity of management
  challenges
• Make decisions on how to address challenges
• Make recommendations for implementation

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General Approach to Case Studies

• Consider what the main issues of the case study
  are.
• Start with the basic tools e.g.
• Assess opportunities and threats (environment)
• Assess core competences, unique resources and
  competence gaps
• Assess financial situation
• Use results of analysis as starting point for
  developing proposals for improvement
• Justify your conclusions with reference to the
  case
• Apply all your theoretical knowledge, but learn
  from the case what has/has not worked in the past

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Case Study Approach
Discriminate between fact, data, opinion etc.
Read and Understand the Case
Identify issues, use data and information,
Describe problem(s)
Problem Diagnosis and Definition
From course learningFrom previous learningFrom
work experience
Access Knowledge on Subject
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Case Study Approach
Application of theory,research and conceptual
models
Issue Analysis
Generate alternatives/options Arguments for and
againstSelect/prioritise alternatives
Develop and Evaluate Alternative
Solutions/Strategies
Clarify your positionSet next steps
Propose Recommendations
Reflective thinkingLearning pointsContextualise
in the business world
Final Conclusions
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Carpe diem!

• Read the Handbook sections detailed in the module
  guide
• Do the basic reading identified for each session
  (iCat)
• Prepare for case study discussions and learn from
  each other. This is vital prep for the exam!
• Become familiar with the Harvard Business Review.
  For example check out the Bower Gilbert article
  in Feb 2007 issue on Strategy Development