Concepts of Strategy ( DISCUSSION )

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CONTEMPORARY STRATEGY ANALYSIS

tenth edition

Robert M. Grant

John Wiley & Sons Ltd., 2019

Chapter 1

The Concept of Strategy

The role of strategy in success
A framework for strategy analysis
The evolution of strategic management
What is strategy? How do we describe it?
How is strategy made?
Strategy and not-for-profit organizations

OUTLINE

Ingredients of Success

THE ROLE OF STRATEGY IN SUCCESS

QUEEN ELIZABETH & THE HOUSE OF WINDSOR	LADY GAGA & THE HOUSE OF GAGA
GOALS	Life-long dedication to role of monarch and head of state	Single-minded quest for stardom through her Lady Gaga persona
UNDERSTANDING THE ENVIRONMENT	Alert to the changing political and social environment . Sensitive to the mood and needs of the British people	Awareness of: new economics of the music business marketing potential of social networking needs of Generation Y
RESOURCE APPRAISAL	Recognized lack of formal authority and need to exploit traditional loyalties and informal influence	Exploited her innate theatricality, eccentricity, design capability, and musical skills
IMPLEMENTATION	Resolute commitment; strong self-discipline; building an effective family team supported by loyal professionals	Devotion to living the Lady Gaga character; engagement in continually creating new images for herself

What Makes a Successful Strategy?

Long-term, simple and agreed objectives

Objective appraisal of resources

EFFECTIVE IMPLEMENTATION

Successful strategy

Profound understanding of the competitive environment

THE ROLE OF STRATEGY IN SUCCESS

Strategy as the Link between the

Firm and its Environment

THE FIRM

• Goals &

Values

• Resources &

Capabilities

• Structure &

Systems

THE

INDUSTRY

ENVIRONMENT

• Competitors

• Customers

• Suppliers

STRATEGY

THE BASIC FRAMEWORK FOR STRATEGY ANALYSIS

Ryanair’s activity system

Low operating costs

High aircraft

utilization

High labor

productivity

Boeing

737s only

No-frills product offering

Point-to-point routes

25-min.

turnaround

No baggage

transfer

Job

flexibility

Single class, no reserved seating

Internet-only

check-in

Low prices;

Charges for all additional services

Secondary

airports

Direct sales only

THE BASIC FRAMEWORK FOR STRATEGY ANALYSIS

1950s:

Financial budgeting

Operational budgeting
DCF capital budgeting

1960s & early 1970s:

Corporate planning

Corporate plans based on medium-term economic forecasts

Late 1970 & 1980s:

Emergence of Strategic Management

Strategy as a quest for profit
Industry analysis and competitive positioning

1990s:

The Quest for Competitive Advantage

Emphasis on resources & capabilities
Shareholder value maximization
Refocusing, outsourcing, delayering, cost cutting

The Evolution of Strategic Management

21st century:

Adapting to Turbulence

Adapting to and exploiting digital
The quest for flexibility & strategic innovation
Strategic alliances
Social and environmental responsibility

3 key changes:

Changing concept of strategy
Changing processes of strategy formulation
New tools of strategy analysis

A BRIEF HISTORY OF BUSINESS STRATEGY

Distinguishing strategy from tactics:
Strategy is the overall plan for deploying resources to establish a favorable position.
Tactic is a scheme for a specific maneuver

What is Strategy?

Characteristics of strategic decisions:
Important.
Involve a significant commitment of resources.
Not easily reversible

STRATEGY TODAY

Lost Boy: “Injuns! Let ’s go get ‘em!”

John Darling: “Hold on a minute. First we must have a strategy.”

Lost Boy: “Uhh? What’s a strategy?”

John Darling: “It’s, er … it’s a plan of attack.”

— Walt Disney’s Peter Pan

Definitions of Strategy

Strategy: a plan, method, or series of actions designed to achieve a specific goal or effect. — Wordsmyth Dictionary (http://www.wordsmyth.net)

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 (MIT Press, 1962)

Strategy: “a cohesive response to an important challenge.”

——Richard Rumelt, Good Strategy / Bad Strategy (Crown Business, 2011)

STRATEGY TODAY

Strategy as Decision

Support

Strategy as Coordination

and Communication

Strategy as Target

Improves the quality

of decision making

Creates consistency

and unity

Improves perform-

ance by setting

high aspirations

Why Do Firms Need Strategy?

STRATEGY TODAY

CORPORATE

STRATEGY

BUSINESS

STRATEGY

RATE OF PROFIT ABOVE THE COST OF CAPITAL

How do we make money?

INDUSTRY

ATTRACTIVENESS

Which businesses should we be in?

Sources of Superior Profitability

COMPETITIVE ADVANTAGE

How should we compete?

STRATEGY TODAY

Describing Strategy:

Current Positioning, Future Direction

STRATEGY AS POSITIONING

Where are we competing?

- Product market scope

- Geographical scope

- Vertical scope

How are we competing?

- What is the basis of our

competitive advantage?)

STRATEGY AS DIRECTION

What do we want to become?

- Vision statement

What do we want to achieve?

- Mission statement

- Performance goals

How will we get there?

- Guidelines for development

- Priorities for capital

expenditure, R&D

- Growth modes: organic

growth, M&A, alliances

COMPETING FOR THE

PRESENT

PREPARING FOR THE

FUTURE

STRATEGY TODAY

Strategy as Design

Planning and

rational choice

INTENDED

STRATEGY

Many decision makers

responding to multitude of

external and internal forces

REALIZED STRATEGY

EMERGENT

STRATEGY

Strategy as Process

Mintzberg’s Critique of Formal Strategic Planning:

The fallacy of prediction—the future is unknown
The fallacy of detachment—impossible to divorce formulation from

implementation

The fallacy of formalization—inhibits flexibility, spontaneity,

intuition and learning.

Strategic Making: Design or Process?

HOW IS STRATEGY MADE? THE STRATEGY PROCESS

Applying Strategy Analysis

Identify the current strategy

Appraise performance

Diagnose performance

Industry analysis

Analysis of resources & capabilities

Formulate strategy

Implement strategy

HOW IS STRATEGY MADE? THE STRATEGY PROCESS

Setting the strategic

agenda

Analyzing the situation

Formulating

strategy

Implementing

strategy

Applying Strategy Analysis to Not-For-Profits

STRATEGIC MANAGEMENT OF NOT-FOR-PROFIT ORGANIZATIONS

	Organizations in competitive environments that charge users	Organizations in competitive environments that provide free services	Organizations sheltered from competition
Examples	Royal Opera House Guggenheim Museum Stanford University	Salvation Army Habitat for Humanity Linux	European Central Bank New York Police Dept. World Health Organization
Analysis of goals and performance	Identifying mission, goals, and performance indicators and ensuring consistency among them is a key area of strategy analysis for all non-profits
Analysis of the competitive environment	Main tools of competitive analysis are the same as for for-profit firms	Main arena for competition and competitive strategy is the market for funding	Not important. However, agencies compete for public funding.
Analysis of resources and capabilities	Identifying and exploiting distinctive resources and capabilities critical to design strategies that create competitive advantage	Analysis of resources and capabilities essential in determining priorities and designing strategies
Strategy implementation	The basic principles of organizational design, performance management, and leadership are common to all organizational types

Summary

The role of strategy in success

Strategy important to the success of individuals and organizations

Successful strategies embody clear goals; insight into the external environment; appraisal of internal resources; sound implementation

The framework for strategy analysis

Links the firm to its external environment

The evolution of strategic management

Strategy was concerned with detailed planning; now its is about direction, identity, and exploiting the sources of superior profitability

What is strategy? How do we describe it?

Strategy describes where a firm is competing, how it is competing, and the direction in which it is developing

How is strategy made?

Through combining purposeful planning (rational design) and flexible responses to changing circumstances (emergence).

Strategic management of not-for-profit organizations

Most of the tools of strategy analysis are applicable