Introduc)on to Strategy What Is It & How Does It Work?
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In November of 2006, Yahoo! Manager Brad Garlinghouse issued a memo – known as “The Peanut BuMer Manifesto” – that directly challenged the senior management with not having a strategic vision.
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At Yahoo!, growth had slowed. Google had overtaken them in online adver)sing revenues and the share price had fallen by over 30% since the start of the year.
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According to Garlinghouse, Yahoo! was spread too thin – like peanut buMer – and it was )me for strategic change.
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Now, all organiza)ons are faced with challenges when it comes to strategic change – some from a desire to grab new opportuni)es other to overcome significant problems, as Yahoo! had
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Before we can talk about what strategy is, we have to understand what strategic decisions are and what types of problems they can poten)ally cause…
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Strategic decisions are about: The long term direc)on of an organiza)on and the scope of its ac)vi)es
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Strategic decisions are about: Gaining advantage over compe)tors and address changes in the business environment
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Strategic decisions are about: Building resources and competences (capabili)es) and achieving the values and expecta)ons of stakeholders
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Strategic decisions are extremely important to an organization’s growth and future!
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As a result, they are likely to: Be complex and made in situations of uncertainty with its overall effect being operational decision making
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As a result, they are likely to: Require an integrated approach – internally and externally – and involve considerable change
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But then if you don’t have a strategy, everything is hodgepodge.
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Strategy & Strategic Management The Difference
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The words strategy and strategic decisions are typically associated with issues like:
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The long-‐term direc0on of an organiza0on. In the Yahoo! example, Garlinghouse explicitly recognized that strategic change would require a “marathon not sprint” mentality
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The scope of the organiza0on’s ac0vi0es Should the organiza)on concentrate on one area of ac)vity or should it have many? Garlinghouse believed that Yahoo! Was spread too thinly over too many different ac)vi)es
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Advantage for the organiza0on over compe00on The problem at Yahoo! was that it was losing its advantage to faster-‐growing companies such as Google.
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Advantage can be achieved in different ways and mean different things to different people – so make sure that you understand what it means to your industry
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A strategic fit with the business environment Organiza)ons need appropriate posi)oning in their environment to meet clearly defined market needs
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This might mean a small business looking for its niche in the market or a MNC seeking to buy up businesses that have already found their posi)on. Garlinghouse felt that Yahoo! was trying to succeed in too many environments.
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Maximize the organiza)on’s resources and competences Strategy is about exploi)ng the strategic capability of an organiza)on to provide compe))ve advantage and/or yield new opportuni)es
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The values and expecta0ons of powerful actors in and around the organiza0on Individuals, groups an even other organizations can drive fundamental issues such as expansion or consolidation, or where the boundaries are drawn for the organization’s activities.
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At Yahoo!, managers may have pursued growth in too many direc)ons and been too reluctant to hold themselves accountable. But lower-‐level managers, ordinary employees, suppliers, customers and Internet users all have a stake in the future of Yahoo! too.
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The beliefs and values of these stakeholders will have a greater or lesser influence on the strategy development of an organiza)on depending on the power they hold
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So the most basic defini0on of strategy: The long-‐term direc)on of an organiza)on
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But, with all of these characteris)cs, we can develop a clearer, fuller defini)on…
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Strategy is the direc)on and scope of an organiza)on over the long term, which achieves advantage in a changing environment through its resources and competencies with the aim of fulfilling stakeholder expecta)ons.
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Complexity is a defining feature of strategy and strategic decisions no maMer whether you are a MNC or a small business
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What are some of the complexi)es?
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Uncertainty is inherent in strategy because nobody can be sure about what the future holds
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Opera0onal decisions are linked to strategy. Any aMempt to coordinate Yahoo!’s business units more closely will have a knock-‐on effects on web designers, links, career, development and adver)ser rela)onships
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This link is important for 2 reasons: If the opera)onal aspects are not in line with the strategy, then no maMer how well consider the strategy, it will not succeed
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This link is important for 2 reasons: It is at the opera)onal level that real strategic advantage can be achieved
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Integra0on is required for effec0ve strategy Manager must follow cross func)onal and opera)onal boundaries to deal with strategic problems and come to agreements with other managers who have different interests and priori)es
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Rela)onships and networks outside the organiza)on are important in strategy
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Change is a typically crucial component of strategy, which is often difficult because of the resources and organizational change
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According to Garlinghouse, Yahoo!’s barriers to change seemed to include a top management that is afraid to take hard decisions and a lack of clear accountability amongst lower-‐level management.
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Three Levels of Stratgy
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Strategies exist at mul)ple levels in an organiza)on. Each level can have an independent strategy or certain levels can be working from one strategy.
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There are three (3) dis)nct levels of strategy that we need to understand…
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Level 1 – Corporate Level Strategy Corporate level strategy is concerned with the overall scope of an organiza)on and how value will be added to the different parts (business units) of the organiza)on.
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Corporate Level Strategy Influencers Ø Ø Ø
Geographical coverage Diversity of products/service or business units How resources are allocated between different parts of the organization
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Corporate Level Strategy is concerned with the expecta)ons of the owners, shareholders and stock market; and usually takes the form of a “Mission Statement”
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Corporate Level Strategy is important because it determines the range of business to include in other strategic decisions
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Level 2 – Business Level Strategy Business Level Strategy is about how the various businesses included in the corporate strategy should compete in their par)cular markets.
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Business Level Strategy is some)mes called Compe))ve Strategy
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Business Level Strategy Influencers Ø Ø Ø
Decisions about how units should provide best value services Pricing Strategy Innovation and differentiation
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So Corporate Level Strategy involves decisions about the organiza)on as a whole, while Business Level Strategy relates to strategic business units (SBUs) within the overall organiza)on
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What is a Strategic Business Unit?
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An SBU is a part of an organiza)on for which there is a dis)nct external market for goods and services that is different from another SBU.
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In Yahoo!’s case, the SBUs would be Yahoo! Photos and Yahoo! Music, for example.
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Now, you may be thinking that is a huge organiza)on, what about small businesses?
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Small and Medium sized Enterprises (SMEs) also have corporate and business level strategies, but there is a greater similarity within them.
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The Corporate Level Strategy provides the framework for whether and under what condi)ons other business opportuni)es might be added or rejected.
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One thing to keep in mind – the corporate strategy should support the SBUs, but the SBUs have to make sure their Business Level Strategies do not damage the corporate or other SBUs in the group.
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Level 3 – Opera0onal Strategy Opera)onal strategies are concerned with how the component parts of an organiza)on deliver effec)vely the corporate-‐ and the business-‐level strategies in terms of resources, processes and people.
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In most businesses, successful strategies depend on the decisions that are taken, or ac)vi)es that occur, at the opera)onal level – making these strategies extremely important.
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The Vocabulary of Strategy Knowing the Terminology
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There are 8 terms that you will see in associa)on with any strategy-‐related discussion.
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These terms provide a framework for anyone discussing or learning about strategy, thus we will add them to your vocabulary.
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Mission A general expression of the overall purpose of the organiza)on which is in line with the values and expecta)ons of major stakeholders and concerned with the scope and boundaries of the organiza)on.
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The easy way to remember the Mission is “What business are we in?”
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Vision or Strategic Intent The desired future state of the organiza)on. It is an aspira)on around which a strategist might seek to focus the aMen)on and energies of members of the organiza)on.
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Goal The general aim in line with the Mission. Can be qualita)ve.
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Objec@ve A more precise aim in line with the goal. Is usually quan)fied.
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Strategic Capability Concerned with the resources and competences that an organiza)on can use to provide value to customers or clients.
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Business Model Describes the structure of product, service and informa)on flows and the roles of the par)cipa)ng par)es
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A tradi)onal model for manufacturing is a linear flow of products from component to product to distributor to retailer to consumer. Informa)on may flow directly between the product manufacturer and the final consumer.
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Strategic Control Monitoring the extent to which the strategy is achieving the objec)ves and sugges)ng correc)ve ac)on (or a reconsidera)on of the objec)ves)
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So What Did We Learn?
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Strategy is relevant to a wide range of contexts.
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A small entrepreneurial start-‐up will need a strategy statement to persuade investors and lenders of its viability.
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Public sector organiza)ons need strategy statements not only to know what to do, but also to reassure their funders and regulators that what they do is what they should be doing.
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Voluntary organiza)ons need to communicate exci)ng strategies in order to inspire volunteers and donors.
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SBU managers need to propose clear strategies that are consistent with the objec)ves of their corporate owners and with the needs of other SBUs within the corporate whole.
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Privately-‐held organiza)ons need persuasive strategy statements to mo)vate their employees and to build long-‐term rela)onships with their key customers and suppliers.
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Strategy is everywhere in business, even when we don’t see or understand it. It serves a number of purposes to drive organiza)ons forward.
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The study and understanding of strategy is cri)cal to being successful in business because understanding it makes you look at factors that are internal and external to your own control, planning for the impact they could have on your organiza)on.
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Next Week’s Lecture
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Next week, we will start looking at how strategies are created, in terms of process, brainstorming and formats.
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We will also learn how military strategists have impacted how business strategies are developed.
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