Study Notes on Strategy and Strategic Choice

Chapter Nine: Strategy and Strategic Choice

Chapter Outline

  • Functional Strategies that can be used to achieve organizational objectives
  • Constructing corporate scenarios
  • Considering different Industries - Strategic Fit
  • 10 commandments for crafting business strategies.

Process of Strategic Choice

  • Strategic Choice Definition: Strategic choice refers to the evaluation of strategic alternatives and the selection of the best alternative.
  • Consensus Misconception: The best strategic decisions are not arrived at through consensus when everyone agrees on one alternative, as this may not lead to critical analysis of potential strategies.

Strategy

  • Operational and Functional Strategies: Different operational and functional strategies can be employed to achieve organizational goals, depicted in the subsequent diagram, illustrating the interaction between various strategic levels.

Relationship Between Different Levels of Strategy-Making

  • Corporate Strategy: The overarching strategy for the organization as a whole.
  • Business Strategies: Specific strategies relevant to specific business units or products.
  • Functional Strategies: Strategies acceptable at the departmental or functional level.
  • Operating Strategies: These concern narrower strategies tied to grassroots activities and strategically relevant operating units.
  • Two-Way Influence: All levels of management influence and interact with one another, specifically:
    • Corporate-Level Managers
    • Business-Level Managers
    • Operating Managers
    • Functional Managers

Operating Strategies

  • Definition: Operating strategies focus on more detailed methods for managing day-to-day operations and the strategic tasks of organizational units.

Example: Boosting Worker Productivity

  • To boost productivity by 10%, managers of a firm adopting a low-price, high-volume strategy can implement the following:
    • The recruitment manager employs a selection process to eradicate all but the best-qualified candidates.
    • The information systems manager devises methods to leverage technology for the productivity of office workers.
    • The compensation manager formulates an enhanced incentive compensation plan.
    • The purchasing manager acquires new tools and equipment aimed at increasing efficiency.

Functional Strategies

  • Definition: Functional strategies serve as the game plan for a strategically relevant function, detailing how key activities will be conducted to support the overall business strategy and achieve functional objectives.

Marketing Strategy

  • 4 Ps of Marketing: This includes the articulation of:
    • Type of promotion to employ.
    • Pricing policy adopted.

R&D Strategy

  • Overview: R&D strategies encompass product and process innovations and improvements, as well as methodologies for acquiring new technology through:
    • Internal development
    • External acquisition
    • Strategic alliances
  • R&D Options: A company can choose to be a technological leader by pioneering innovation or a technological follower by imitating competitors' products.

Operations Strategy

  • Operations strategy specifies how products or services will be manufactured, detailing:
    • Level of vertical integration in the production process.
    • Deployment of physical resources and supplier relationships.
    • Optimal technology levels in operations processes.
  • Technological Implementations: The operations strategy increasingly incorporates:
    • Computer-Assisted Design and Manufacturing (CAD/CAM).
    • Mass production systems for the generation of low-cost, standardized goods/services.
    • Continuous improvement systems designed to significantly enhance quality.

Purchasing Strategy

  • Overview: The purchasing strategy relates to acquiring raw materials, parts, and supplies necessary for operations.
  • Multiple Sourcing vs Sole Sourcing:
    • Multiple Sourcing: Involves obtaining specific components from various suppliers to:
    1. Enhance competition among suppliers, thereby reducing costs.
    2. Ensure availability of parts and supplies, mitigating risks of stockouts.
    • Sole Sourcing: According to Deming, this approach is a more manageable method for acquiring higher quality suppliers, which simplifies purchasing by implementing Just-In-Time (JIT) strategies.

Logistics Strategy

  • Definition: The logistics strategy is concerned with the flow of products into and out of the manufacturing process.
  • Trends in Logistics: Three significant trends include:
    • Centralization: Firms centralize logistics to achieve synergies and better negotiate contracts.
    • Outsourcing: This approach reduces costs and enhances delivery efficiency.
    • Internet Utilization: Streamlines logistics processes for better efficiency.

Human Resource Management (HRM) Strategy

  • Overview: HRM strategies address decisions regarding workforce characteristics:
    • Hiring a large pool of low-skilled, low-paid employees for repetitive tasks vs. hiring skilled workers receiving higher pay who can participate in self-managing teams.
  • Diversity as Competitive Advantage: Companies are increasingly recognizing that a diverse workforce can deliver competitive benefits.

Tools for Strategic Choice for Businesses with a Portfolio

  • BCG Matrix: A framework used for analyzing business unit performance and market growth.
  • SWOT Matrix: A tool for identifying Strengths, Weaknesses, Opportunities, and Threats related to business decisions.

Other Considerations When Choosing Your Strategy

  • Additional factors must also be evaluated when determining a strategic course of action for the organization.

Constructing Corporate Scenarios: Another Approach to Choice

  • Estimated Figures Approach: By employing three sets of estimated figures (i.e., sales: Optimistic, Pessimistic, Most Likely) for new products over the next five years, alternatives can be assessed concerning their projected effects on the company's performance as reflected in anticipated financial statements.

Management's Attitude Toward Risk

  • Definition of Risk: Risk encompasses both the probability of strategic efficacy and the asset allocation requirements associated with a strategy.
  • Impact of Ownership Structure: Smaller firms managed by entrepreneurs are often more willing to accept risk compared to large diversified enterprises overseen by professional managers.
  • Risk Profiles: Companies can be classified based on their risk tolerance as:
    • Risk Averters (risk averse)
    • Risk Takers

Pressures from Stakeholders

  • The perceived compatibility of strategic alternatives with key stakeholders significantly influences their attractiveness. Stakeholders can be categorized based on how strategic decisions will impact them, including:
    • Shareholders
    • Suppliers
    • Consumers
    • Employees

Pressures from Corporate Culture

  • Culture Compatibility: If a strategy is incongruent with corporate culture, the prospects for successful implementation diminish substantially.
  • Management Options: When faced with cultural incongruities, management must decide whether to:
    • Ignore the culture
    • Adjust the implementation strategy around the culture
    • Alter the company culture to align with strategy
    • Revise the strategy to fit the existing culture
  • Conservative Strategy Risks: Limiting options to strategies that exclusively match corporate culture could forfeit potentially lucrative opportunities.

Needs and Desires of Key Managers

  • Even the most appealing alternatives may be dismissed if they conflict with the preferences and needs of pivotal management personnel. Factors influencing this include:
    • Personal characteristics and prior experiences.
    • Personal investment or ego tied to certain proposals.
    • Senior executives possessing influence over other management personnel to advocate specific projects.

Criteria for Evaluating Alternatives

  • Each resulting alternative must be rigorously assessed according to its capacity to satisfy four criteria:
    1. Mutual Exclusivity: Engaging in one alternative must preclude the viability of others.
    2. Success Probability: The alternative must be feasible and possess a substantial success likelihood.
    3. Completeness: Must consider all essential strategic issues.
    4. Internal Consistency: The decision must coherently align with existing goals, policies, and strategies of the firm and its subdivisions.

Chapter Ten: Strategy and Strategic Choice (Continued)

Different Strategy to Fit Specific Industry and Company Situations

  • Strategies should be adapted based on the peculiarities of each industry and the unique circumstances of the company.

Matching Strategies to Different Industries

  • Emerging Industries: Strategies must be formulated to capture early market share and establish competitive footing.
  • Maturing Industries: Different approaches suitable for industries nearing saturation.
  • Rapidly Growing Markets: Strong, aggressive strategies are necessary to capture and maintain customer interest.
  • Declining Industries: Defensive strategies that emphasize cost management and survival may be needed.
  • Industry Leaders: Strategies aimed at reinforcing market dominance and competitive advantage.
  • Runner-up Firms: Strategies focusing on capturing market share from leaders or differentiation from competitors.
  • Weak Businesses: Focused strategies to stabilize operations and reposition in the market.
  • Ten Commandments for Crafting Strategies: Guiding principles to shape effective business strategies.

Most Important Drivers Shaping a Firm’s Strategic Options

  • Categories of Drivers:
    • The firm’s competitive capabilities, market positions, and best opportunities available.
    • The nature of industry traits and competitive conditions.
  • Matching Strategy to Company Situations: Tailoring strategic approaches to fit individual company contexts based on internal and external factors.

Strategic Choice Features of an Emerging Industry

  • Identifiable characteristics that contribute to forming appropriate strategic options in new markets.

Features of Rapidly Growing Markets

  • Key elements that define rapidly expanding markets and necessary strategic responses.

Characteristics of Maturing Industry

  • Core traits that typify industries that are growing less rapidly and potential strategic options based on these traits.

Stagnant or Declining Industries

  • Notable characteristics that define stagnant or declining industries and viable strategies to address these challenges.

Strategies Based on a Company's Market Position

  • Various strategic approaches corresponding to a firm's market standing:
    • Industry Leaders: Strategies emphasizing leadership robustness.
    • Runner-up Firms: Tactics aimed at closing the gap with top competitors.
    • Weak or Crisis-ridden Firms: Recovery strategies to regain competitive footing.

Summary of Strategic Management Principles

  1. Always prioritize the formulation and execution of strategic actions that enhance competitive positions for the long-term, solidifying leadership within the industry.
  2. Prompt adaptation and response to market shifts, unmet customer needs, emerging technologies, and competitive initiatives are crucial; delay in responsiveness risks significant competitive disadvantage.
  3. Sustainable competitive advantages should be a focal point for investment as they signify dependable contributors to enhanced profitability.
  4. Avoid developing strategies that are only viable under optimal conditions.
  5. Recognize and consider competitor reactions and commitments.

6 to 10 Strategic Management Principles

  1. Attacking competitive weaknesses may yield higher profits than confronting strengths.
  2. Be cautious about price cuts without establishing a sustainable cost advantage.
  3. Employ aggressive strategic moves in differentiation strategies to create noticeable gaps in quality and service.
  4. Avoid becoming stagnated without a coherent long-term strategy or a distinctive competitive position.
  5. Be conscious of aggressive strategic moves that may provoke retaliatory actions among competitors.

Selecting the Best Strategy

  • The optimal strategy efficiently leverages environmental opportunities alongside corporate strengths, guarding against threats and weaknesses.
  • Each strategic alternative's ability to meet established objectives with minimal resource utilization and adverse impacts is critical in the selection process.

Concluding Thought on Strategic Choice

  • Strategic competition in the marketplace is akin to warfare, entailing significant risks, where the strongest strategies prevail.