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Chp 2: Strategic Thinking & Strategic Decision Making - Coggle Diagram
Chp 2: Strategic Thinking & Strategic Decision Making
Overview of Strategy Planning & Strategic Management
Strategic Planning become as a business process in the late 1950s-early 1960s.
Strategy planning become a centralised head-office function in large organisations during this era.
Managers of newly formed strategic business units (SBUs) are in charge of implementation of strategies.
WHAT is Strategic Business Unit?
It defined as a free-standing business within a larger organisation meeting the following criteria:
has a unique business mission.
is independent of other SBUs.
has a clearly definable set of competitors who are competing in external markets.
can carry out integrative planning processes relatively independently of other SBUs.
can manage resources in key areas.
a large enough to justify senior management attention, but small enough to serve as a useful focus for resource allocation.
Remarks: Organisations described their divisions / branches as SBUs.
WHY break up a company into SBUs?
Major problems arise when trying to treat different businesses in the same way (cannot sell different product in the same way).
What is required for success in one business is very different to what is required for success in another business.
Business need to expand into new areas to keep growing.
Different critical success factors, different strategies required for success, so need to be treated differently. (Exp: Milo and Nescafe must run differently)
TOOLS & TECHNIQUES for formulations of strategic recommendations :
Product life cycle theory
Product portfolio models
GE/McKinsey matrix
Ansoff's product market and strategic gap analysis models (Porter)
Peter Drucker's concept of management-by-objectives (MBO).
ISSUES with the early prescriptive strategic planning process of the 1970s
Rational process of strategy formulation
Rational/technical approaches to organisational decision making were not possible
Decisions were made by 'baby steps' or by 'muddling (confusing) through'.
In most circumstances, decisions were evolutionary (relating to or denoting the process by which different kinds of living organism are believed to have developed from earlier forms) rather than revolutionary (involving or causing a complete or dramatic change).
According to Quinn, the processes used to arrive at the total strategy are typically fragmented, evolutionary and large intuitive (Based on feelings). Real strategy tends to evolve as internal decisions and external events flow together to create a new, widely shared consensus (general agreement) for action among key members of the top management team.
The organisational structure
It was argued that strategy planning was structured as a top down planning process controlled by strategy planners who were often considered to have following characteristics:
being arrogant
remote from the real work of running the organisation's business.
lacking in business experience (line-management experience)
lacking in industry-specific knowledge
being over-reliant on analytical techniques
lacking in creative skills
Centralised strategy planning produced from an aggregate head office was too remote and detached from the day-to-day activities and realities of various SBUs.
Line managers have little input into the strategy formulation process.
Strategic plans lacked consideration of the aspects of implementation and performance evaluation.
Conceptual foundation
Certain repetitive patterns, such as seasons, may be predictable, the forecasting of discontinuities, such as technological innovation or a price increase, is virtually impossible.
The experience curve. product life-cycle theory and portfolio planning were based on oversimplified concepts of competition and quick-fix solutions.
Many important determinants for corporate success were often left out of considerations.
Creative thinking
Planning is based on analysis, while strategic thinking is based on synthesis (combination of components as a whole).
Analysis is not synthesis, strategic planning is not strategy formulation. Analysis may precede and support synthesis, by defining the parts that can be combined into wholes. Analysis may follow and elaborate synthesis. by decomposing and formalizing its consequences. But analysis cannot substitute for synthesis. No amount of elaboration will ever enable formal procedures to forecast discontinuities, to inform managers who are detached from their operations, to create novel strategies.
8 attributes that characterised excellent companies:
A bias for action. Getting on with it - active decision-making.
Close to the customer. Learn from the people you serve.
Autonomy & entrepreneurship. Fostering innovation and encouraging practical risk taking.
Productivity through people. The rank and file are the root source of quality and productivity.
Hands-on, value-driven. Company values guide everyday practices.
Stick to the knitting. Stay close to the business you know.
Simple form, lean staff. Simplify organisational structures and minimise top-level staff.
Simultaneous loose-tight properties. Push autonomy down to the shop floor (loose control) but focus on core values (tight control).
In 1980s, decision making started to become decentralised (known as 'hierarchy of strategies')
Corporate level
Emphasise on building and maintaining a portfolio of high-performing businesses
Corporate mission statement, short & long-term objectives, strategies enhance SBU performance, resource allocation, competitive advantage, corporate development strategies.
Exp: QANTAS
Corporate Marketing
Corporate values:
Why are we here?
What do we want?
How do we do this?
SBU level
Emphasise the development of strategies concerning product-market positions and the establishment of a sustainable competitive advantage for the SBU.
Plans business mission (focus on product markets the SBU should compete in within its industry), performance objectives (profit, ROI & cash flow)
Exp: in-flight catering
Strategic Marketing
where to compete?
How to compete
When to compete?
Operating / functional (individual product) level
Concerns strategies involving each of the organisation's functions including production, finance, marketing, R&D and personnel (for a manufacturing organisation).
Marketing management, specific design of product, ad campaign.
Exp: Economy class meals, First class meals
Marketing management
Formulate marketing programs for specific products.
The new era of strategy development
Teece, Pisano & Shuen
come out with
four main paradigms
(post 1990):
Competitive forces approach
Strategic conflict approach
Resource-based view of the firm (RBV)
Dynamic capabilities
1) Competitive forces approach
Porters competitive forces concept
In 2004 & 2005, Kim & Mauborgne extended Porter's competitive forces approach with the introduction of their concept of
blue ocean strategy
.
They argued that instead of only developing competitive advantage in existing market (red ocean strategy), an organisation should focus on creating a new market space (a blue ocean) by identifying customers' unmet needs.
2) Strategic conflict approach
Instead of accepting market-defined rules of the game (as in the competitive forces approach), a competitor should seek to
rewrite new rules
- based on its own particular strengths.
Strategist would focus their attention on devising ways in which their
firm could influence the behavior and actions of its competitors
.
Game theory models
seek to provide a range of possible outcomes arising from actions taken by the firm and its existing or new competitors, while taking into consideration a number of assumptions such as competitive cost structures, customer demand, market growth and technological change.
Price cutting, a change of distribution or new product introductions against a variety of changes to the external environment.
Main value is it provides a framework for strategists to focus on the dynamic nature of the markets in which they compete and the possible outcomes of different strategies designed to influence the behavior of their competitors.
3) Resource-based view of the firm (RBV)
It views organisations that have superior systems and structures as able to achieve lower cost structures than their competitors (due to factors as economies of scale, supply chain efficiency or operational efficiency) or product superior quality products or services.
This consider that competitive advantage is achieved by virtue of their superior resources rather by competitive positioning. (Unique value-creating strategy).
4) Dynamic capabilities
Capacity of an organisation to renew competences that are required to compete successfully for the changing business environment.
Strategists need to:
they need to develop sensing capabilities - to be able to accurately sense changes occurring in the business environment brought about by such factors as technology innovation, changing competitive landscape (including global and online competition), changing customer preferences, changing government and legal regulation, and economic change (including the growth of developing economies)
The ability of the organisation to respond appropriately to the changing environment - the capability to adapt, integrate and reconfigure the organisation's resources and skills.
The strategic marketing management process
4 different ways that marketing strategies may be developed:
as a part of a broader-based formal strategy planning / strategic management process
As part of broader-based set of strategy deliberations that are made outside of a formal strategy planning process
As a separate strategic marketing plan
As a paper / report containing marketing strategy recommendations.
Mission & Vision
The mission statement sets out the core purpose of the organisation.
Strategic Analysis
Review the current situation facing the organisation and most importantly, to arrive at assumptions about the future situation.
Strategic Development
High-level business and marketing decision-making
Strategy Implementation
Transforming strategy recommendations into reality.
Strategy Evaluation & Control
Provide a mechanism for tracking the strategies articulated in the marketing strategy document to ensure that the long-term objectives will be achieved.
WHY strategic marketing management process is important?
To ensure they remain profitable.
Competitor brands must also be strategic to be able to compete.
