HUBB SMGT 6E PPT 01 - Lecture notes Sok Sary PDF

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Strategic Management 6th edition

Chapter 1 What is ‘strategy’?

Learning objectives 1.1 Define strategy and describe its essential major aspects. 1.2 Discuss the development of strategic thought. 1.3 Identify the major theoretical approaches to strategy. 1.4 Identify three levels of strategy. 1.5 Describe the model for business strategy analysis and management. 1.6 Explain why strategy might be different in countries with smaller economies. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

LO 1.1: ‘Strategy’ defined and its major aspects • Many different definitions of ‘strategy’ exist. • The text defines strategy as: • Those decisions that have high medium- to longterm impact on the activities of the organisation, including the analysis leading to the resourcing and implementation of those decisions, to create value for key stakeholders and to outperform competitors. • This definition highlights seven aspects of strategy.

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Seven aspects of strategy 1. Strategy is about decision-making. 2. Strategy is about long-term impacts of important decisions for the organisation. 3. Strategy is about ‘organisations’ and not simply ‘businesses’ or ‘corporations’. 4. Strategy is about creating value for customers and key stakeholders. 5. Strategy is about integration and focus of organisation functions. 6. Strategy is about implementation of the decisions. 7. Strategy is about outperforming competitors. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

1. Strategies to make decisions. • Decisions are based on rational analysis of organisations, their customers and their industry competitors. • Uncertainty is always present since strategic decisions are about future expectations. • A complete set of relevant information is never available. • Strategy is not just an analysis; it involves action. • For strategic action to occur and for strategy to be implemented, decisions must be made.

Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

2. Strategy as long-term impacts. • Strategy involves commitment. • Strategic decisions cannot be easily reversed and have long-term impacts (either positive or negative), once they are made. • The definition of ‘long-term’ varies with the nature of the industry. • As a rule of thumb, in practice, three years normally qualifies as long-term for strategic plans and decisions for most organisations. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

3. Strategy is about organisations. • Strategy principles and practice are needed for all types of organisations: large and small, private and public, profit and not-for-profit (NFP). • The development and focus of strategy will vary with type of organisation. • ‘Businesses’ are a subset of the more general ‘organisations’. • In businesses, profit and shareholders are more important, but stakeholders, performance, and current and potential competition is important for all organisations. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

4. The strategy of creating value. • Organisations do not carry out activities for their own interest, but carry them out for their stakeholders. • .It

is possible that organisations within the same industry carry out different activities.

• This is because organisations have different customers with different views of value or what is considered to be valuable.

Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

5. Strategy to integrate functions. • Strategic decisions are designed to impact on the whole organisation. • Decisions about serving a particular geographic area not only impact marketing but also affect the operations function of where to produce. • These decisions spill over into logistics (how to store and transport to serve the market), personnel (who to hire) and finance (where to locate accounting), among other functions.

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6. Strategy to implement decisions. • Even the best strategic thinking and analysis cannot achieve expected outcomes without the critical step of implementation. • Implementation (often the forgotten part of strategy) is critical to successful strategy. • Implementation is the management part of strategic management.

Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

7. The strategy of outperforming • Organisations that are content to copy their competitors do not need a strategy. • Without doing something different than competitors, organisations cannot provide special value for its customers and key stakeholders. • The end purpose of strategy is to outperform and do something different than competitors. • While public sector organisations do not necessarily have competitors, inefficiency can cause them to be outsourced, closed down or privatized. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Strategy is about choices. • Choices result in trade-offs. • This includes choices about how the organisation will operationalise its objectives. • Together, the elements of strategy aim to assist an organisation with achieving its long-term goals, which is the essence of operating an organisation, whatever its size or nature.

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The field of strategy • The field of strategy has developed and built its ideas over its relatively short history as an identifiable academic discipline. • There is a wide variety of current theoretical perspectives in the discipline. • Strategic management is an exciting subject, and is critical for delivering good performance for most organisations. • It requires understanding and integration of material from all functional areas of business. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

LO 1.2: The development of strategic thought: a brief history • The history of strategy can be traced to the military in ancient times, as far back as 500 BCE in Greek and Roman military campaigns. • As an academic discipline, its roots are traced to two primary books published in 1965—one on business policy by Learned, Christensen, Andrews and Guth of the Harvard Business School and one by Ansoff on corporate planning. • Both books matched internal strengths and weaknesses of organisations with opportunities and threats of the organisation’s environment. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Figure 1.1: Strategy as the task of the top manager (or CEO)

Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Strategy as the task of the top manager (1 of 2) • This model, along with the continuing work of the staff at the Harvard Business School, where the model originated, has remained enormously influential in the field. • Its originators described the model as complex, yet it is relatively simple because: • It is linear. • It presumes that top management has all strategic information, the complex environment can be analysed and summarised and past performance is good for guiding future action. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Strategy as the task of the top manager (2 of 2) • This model was appropriate for developing strategy in a generally favourable post-World War II environment, where satisfying demand was a major theme for most organisations. • It led to the development of long-range planning, which was based on the extrapolation of existing or known trends. • The position of corporate planner was created and planning departments came into existence in organisations at this time to assist the CEO with the detailed tasks of strategic planning. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Development of corporate strategy and associated techniques (1 of 3) • In the late 1960s, many industries in the USA underwent a conglomerate diversification merger and acquisition wave. • The result was that many multi-business corporations emerged as they sought growth within other industries to avoid anti-trust laws, which discouraged high market shares in any particular industry. • The techniques of strategy at this time were largely designed for business strategic analysis, and it was unclear what techniques or processes a multi-business corporation could use to determine its multi-business, or corporate, strategy. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Development of corporate strategy and associated techniques (2 of 3) • In the period of the late 1960s and early 1970s, consulting firms developed business portfolio techniques for multi-business corporations. • The Boston Consulting Group (BCG) developed a 2 × 2 market growth/relative market share matrix that allowed corporations to balance their portfolio mix of businesses. • BCG also developed the concept of the experience curve, showing unit costs in some industries declined with accumulated volume of production because of productivity improvements occurring due to cumulative production experience. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Development of corporate strategy and associated techniques (2 of 3) • The result was encouragement of corporations to develop economies of scale. • The Profit Impact of Market Strategy or PIMS industry was also developed. • Profitability was found to be related to market share, which also encouraged corporations to seek size growth. • Each of these concepts was developed by large-scale empirical data analysis.

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Focusing on industry and competitive analysis (1 of 3) • Porter’s book in 1980 built on his industrial organisation economics background and changed the focus of strategic analysis. • Prior to Porter, the structure–conduct–performance model of economics assumed that firms largely replicate each other and that industry performance depends on the structure of the market. • With Porter’s deterministic economic model, managers within firms could use a variety of tools to make unique decisions that would influence conduct within the industry and even influence the structure of the industry. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Focusing on industry and competitive analysis (2 of 3) • Firms could position themselves within an industry by offering products or services that gave them a sustainable competitive advantage, which would enable them to achieve superior performance to that of competitors. • Differing profit levels by firms within an industry were seen by Porter as long-term phenomenon. • Porter’s five forces provided tools for managers of corporations to achieve competitive sustainable advantages. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Focusing on industry and competitive analysis (3 of 3) • Porter’s 1985 book focused on competition within an industry through three generic strategies: low delivered costs, differentiation, and focus. • Organisations needed to adopt one of these three strategies to outperform competitors. • Porter’s third book in 1990 focused on how countries could develop appropriate structures so that whole industries made up of clusters of competing but cooperating firms, and not just isolated large ‘national champion’ firms, could be internationally competitive. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Focusing internally: the resourcebased view (1 of 2) • In 1990, Prahalad and Hamel’s concept of the ‘core competence’ of an organisation, coupled with work by Wernerfelt and Barney, developed the concept that strategy could be developed from within, by leveraging the resources of the organisation. • Unlike traditional economics, the assumptions of what became known as the resource-based view of the firm were that firms in an industry were heterogeneous and unique in their makeup due to the specific set of resources available to each firm.

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Focusing internally: the resourcebased view (2 of 2) • Resources, including tangible and intangible assets and know-how, could, if well managed, be ‘bundled together’ to form a unique and defensible portfolio of capabilities that would sustain competitive advantage over time. • Since resources were not perfectly mobile between organisations due to asset specificity, stickiness, transaction costs, sunk costs and information asymmetry, sustainable competitive advantage based on this heterogeneity could well remain for long periods without being eroded by the competition.

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Extending to dynamic processes and capabilities: learning and knowledge (1 of 2) • In 1990, Senge developed the concept of the learning organisation, based on systems theory. • He argued that organisations should not simply react to observed problems, but should understand the systemic cause(s) of the problem and address those causes. • Senge’s work, together with the focus on the total quality management (TQM) movement at the time, led many organisations to focus on processes and the role of learning within the organisation as a cause of strategic success. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Extending to dynamic processes and capabilities: learning and knowledge (2 of 2) • In the late 1990s, the concept of dynamic capabilities was developed to investigate how firm capabilities could emerge over time. • Eisenhardt and Martin noted that capabilities needed to be developed dynamically over time through careful processes of accumulation or investment and unlearning or divestment. • A knowledge-based view of strategy was also developed that emphasised knowledge as a special, unique and complex capability that could create competitive advantage by itself. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

External focus revisited (1 of 2) • In 1994, Hamel and Prahalad, reacting against the operationally oriented focus of TQM and benchmarking, argued that, while improving operational efficiency, this would not lead to any sustainable competitive advantage. • This approach stressed the important roles of innovation and growth for those organisations that wanted to survive in an increasingly uncertain and fast-changing world. • The rate of change was resulting in more intense competition and the loss of any long-term sustainable competitive advantage.

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External focus revisited (2 of 2) • In 1994, D’Aveni, applying game theory to competitive interactions, called this ‘hypercompetition’. • Consistent with this, in 1998, Brown and Eisenhardt applied the theory of complex adaptive systems processes—or complexity theory—to strategy. • They argued that strategy was about the ability of the organisation to change in order to meet unpredictable, uncontrollable and diverse situations in an unknowable future; rather than planning or long-term commitment, organisations needed to experiment and focus on flexibility. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

A new level of analysis: cooperative strategy • At the same time as hypercompetition and complexity theory, strategy was seen to be about cooperating groups of firms, strategic alliances, or networks competing with other groups or networks, rather than about individual firms competing with each other. • This contrasting theory by Nalebuff and Brandenburger argued that competitors cooperated with each other as well as competing, terming this ‘coopetition’. • This new way of thinking recognised the emergence of strategic alliances between competitors, suppliers and customers. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Widening the organisation s responsibilities: stakeholder interests (1 of 2) • By the 2000s, the simple picture of the late 1980s had become very complex. • Basic assumptions such as the organisation as the unit of analysis, the assumption of competition as normal and the importance of sustainable competitive advantage were all being questioned. • A key issue emerging at this time was whether the organisation should be run for the benefit of shareholders or for a wider group of stakeholders. • Theories argued that organisations should be socially responsible; sustainability reporting emerged along with environmental performance. Copyright © 2019 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – ISBN 9781488617348 / Hubbard / Strategic Management 6e

Widening the organisation’s responsibilities: stakeholder interests (2 of 2) • The most recent trends have been disruptive, new business models in traditional industries, like Uber in the taxi industry and Airbnb in the accommodations industry. • Overall, the principles and concepts of strategy, once the exclusive preserve of the CEO, are now being applied to units and functions within a business. • Businesses consider it important that everyone in the organisation understands their strategy, whereas in the past strategy was considered something to be kept confidential.

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LO1.3: Identify the major theoretical approaches to strategy. • Most of the theoretical work has come from one of two discipline sources: economics or organisational psychology (which embraces in part organisational theory and organisational behaviour). • Each theory might lead to a different perspective—and co...