1. Introduction To Business Strategy

Introduction to Business Strategy

Prof. Megha Trivedi

What is Strategy???

The strategy is about winning !

The Characteristics of Strategic Decisions Strategy

is concerned with the long term direction of an organization.

It

is concerned with the Scope of an organization's activities.

It

is to achieve advantage for the organization over competitors.

It

is a search for Strategic Fit with the business environment. (addressing changes)

It

creates opportunities by building on an organization's recourses and competences. (skills, assets, finance, relationships, technical competence, facilities)

The strategy is affected not only by the environmental forces and strategic capabilities but also by the values and expectations of those who have power in an organization.

Elements of successful strategy Well defined long-term goals

Appraisal of the environment

Knowledge of own resources & capabilities

Successful implementation

Successful Strategy R. Grant “Contemporary Strategy Analysis”, 2000

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Johnson and Scholes define strategy as follows "Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations".

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Is a continuous, interactive process aimed at keeping an organization as a whole appropriately matched to its environment (Peter, 1988) A company’s strategy consists of the competitive efforts and business approaches that managers employ to please customers, compete successfully and achieving organizational objects

A strategy is the pattern or plan that integrates an organization’s major goals, policies and action sequences into a cohesive whole. A well-formulated strategy helps to marshal and allocate an organization’s resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment and contingent moves by intelligent opponents.

A company’s strategy is management’s game plan for growing the business, staking out a market position, attracting and pleasing customers, competing successfully, conducting operations, and achieving targeted objectives

Corporate Strategy The pattern of major objectives, purposes or goals and essential policies or plan for achieving those goals, stated in such way as to define what business the company is in or to be in and the kind of company it is or is to be.

Why is corporate strategy important?

It deals with major, fundamental issues that affect the future organisation ◦ It involves the entire organisation ◦ It involves the survival and development of the organisation ◦ Covers the range and depth of the organisation’s activities ◦ Directs the changing and evolving relationship of the organisation with its environment ◦ Is central to the development of sustainable competitive advantage ◦ Is crucial to adding value

Some of the consequences of strategic decisions are: Strategic

decisions can be complex in nature(geographic scope) Uncertainty about the future. It can affect operational decisions (finding new suppliers, building strong brand) Integration (outside and inside the organization

Relationships

and network outside the organization

Strategic

decisions involves considerable change for e.g. Mergers

Levels of Strategy Corporate

Level Strategy: It is concerned with the overall purpose and scope of an organization and how values will be added to the different parts (business units) of the organization ie. Geographical coverage, diversity of products/ services or business units and how recourses should be allocated to

Corporate strategy is often stated explicitly in a "mission statement".

 Business

Level Strategy (SBU): It is about how to successfully compete in a particular market to increase the long term profitability and market share growth. It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc. Corporate-level strategy involves decisions about the organisation as a whole, strategic decisions are related to strategic business units (SBU)

Operational

Strategy - is concerned with how each part of the business is organized to deliver the corporate and business-unit level strategic direction. Operational strategy therefore focuses on issues of resources, processes, people etc.

Levels of Strategies Corporate HQ SBU A

SBU B Manufacturi ng Marketing Accounting HR ….

Corporate strategy

SBU C

Competitiv e strategy Function al strategie

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Content of strategy at different levels

corporate

Portfolio and resource allocation SBU

How to compete Function

Product, market Plans… 21

Vocabulary of Strategy 

Mission Overriding purpose in line with values/expectations of stakeholder e.g Be healthy and fit

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Vision or strategic intent - Desired future state: the aspiration of the organization e.g. To run the London Marathon

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Goal - General statement of aim or purpose e.g. Lose weight and strengthen muscles

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Objective - Quantification or more precise statement of goal e.g. Lose 5 kilos by 1stSeptember & run the

 Strategic capability - Resources, activities and processes: some will be unique and provide competitive advantage e.g. Proximity to a fitness centre; a successful diet (unique recourses and core competence)  Strategies- Long term direction e.g. Exercise regularly, compete in marathons locally, stick to appropriate diet  Business model - How product, service and information flow between participating parties e.g. Associate with a collaborative network (join a running club)  Strategic Control- Monitoring of action steps to (a) assess effectiveness (b) modify strategies/actions e.g. Monitor weight,

British Airways and the vocabulary of strategy 

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Vision ◦ ‘The BA Way’ – Service that matters for people who value how they fly Goals ◦ Profitability (operating margin 10% target) ◦ Customer advocacy (the number of customers who recommend BA) ◦ Safety and security (the number of customers who feel safe with BA) ◦ Respected company (the number of community stakeholders who respect BA) ◦ Employee motivation (the number of employees who feel motivated to deliver BA’s goals) Values ◦ The BA Way is based on five core values: Understanding, Focused, Cost-conscious, Supportive, Trustworthy

Strategies

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The BA Way provides a high level statement of Strategies: To be the best UK based network To understand customers better than competitors To develop a powerful brand that people know and trust. To establish a competitive cost base. To work together as one team.

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Competitive Strengths

◦ A « full service » airline with a strong brand identity, associated with high standards of service, comfort and safety ◦ Clearly defined and well-branded products targeting specific customer segments ◦ Membership of the One World Alliance providing customers with a far more extensive network than BA could provide alone ◦ Dominance of national and international slot allocations at London Heathrow airport ◦ A modern, flexible and cost-effective aircraft fleet ◦ As a listed company, BA must satisfy shareholder expectations, achieving profitability through a combination of service quality and operational efficiency

Strategic Management

It includes understanding the strategic position of an organization, strategic choices for the future and turning strategy into action.

Exhibit 1.3 A model of the elements of

The Strategic Position It is concerned with the impact of strategy of the of the external environment, an organization's strategic capability (recourses and competence) and the expectations and influence of stakeholders

The

Environment- Impact of complex political, economical, social, technological, environmental and legal world on the organization. It can create opportunities or prove to be a threat.

The

Strategic Capability - It is with the help of resources and competence that an organization achieves competitive advantage. The aim of strategic capability is to find out the strengths and weaknesses in an organization

Expectations

and Purposes – Expectation depends on the power in the organization

It is important to understand strategic position to form a view of the key influences on the present and future well being of an organization, and what opportunities and threats are created by the environment, the capabilities of the organization and the expectations of stakeholders.

Strategic Choices It

involves understanding the underlying bases for future strategy at both the business unit and corporate levels and the options for developing strategy in terms of both the directions and methods of development

3. Business Level Strategy : Identifying the bases of competitive advantage.

2. Corporate Level Strategy: It is concerned with relationship between the separate parts of the business and how the corporate ‘parent’ adds values to these various parts. Corporate level Strategy includes decisions about the portfolio of product and /or businesses and

3. Development Directions and Methods: It is concerned with development in different directions i.e. New product, new market, different customers with different methods like growing current business, mergers and acquisitions and /or strategic alliances with other organizations.

Strategy into Action It

is concerned with ensuring that strategies are working in practice. 1. Structuring : Coordinating the activities to support successful performance. This includes organizations structures, processes and relationships (and the interaction between these elements.

2. Enabling : Enabling success through the way in which the separate resource area i.e. People, Information, Finance, and Technology of an organization support strategies. The reverse is also important to success, namely the extent to which new strategies are built on the particular recourses and competence

3. Managing Change: Managing strategy very often involves change. How to manage change? Different types of role of people n managing change? Organizations approach towards change?

Strategy Development Processes  The

way in which strategy develops in an organization.

1. Intended Strategies: Strategy development as deliberate management intent 2. Emergent Strategies : Strategy emerging out of the social and political processes that exist in and around all organizations

The Strategic Process Analysis of environment

Constant monitoring

Identification of vision, mission, and objectives Analysis of resources

Strategic analysis

Strategy Development and implementatio n

Constant monitoring Strategic development and implementation

Tesco’s current strategy is clearly  stated in its annual report.  1. to develop and maintain the core business  2. to expand its non-food range (TVs, computers  clothes; cosmetics and toiletries).  3. to expand services: on-line shopping, credit  cards, utility payments etc (in association  with the Royal Bank of Scotland).  4. international expansion through a steady  series of joint ventures and acquisitions in  Central Europe and Asia

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The following quotations from Porter (1996) and Porter (2001)5 capture the gist of this most recent thinking:

1. “The goal of strategy is to achieve a “superior long-term return on investment.” “Economic value is created when customers are willing to pay a price for a product or service that exceeds the cost of producing it.” (Porter 2001, p.71) 2. “Competitive strategy is about being different.” (Porter 1996, p.64) 3. “Strategy is the creation of a unique and valuable position, involving a different set of activities…. different from rivals” (Porter 1996, p.68)

5. “Strategy defines how all the elements of what a company does fit together.” (Porter 2001, p.71) 6. “Operational effectiveness and strategy are both essential to superior performance, which, after all, is the primary goal of any enterprise. But they work in different ways.” (Porter 1996, p.61) 7. “Operational effectiveness means performing similar activities better than