Strategic Management/ Business Policy Joe Mahoney

Strategic Strategic Management/Management/Business PolicyBusiness Policy

Joe Mahoney

2

Background of Joe MahoneyBackground of Joe Mahoney

Grew up in Philadelphia, PA.

One younger sister (BA University of Pennsylvania; MBA accounting).

One younger brother (Ph.D. Finance, Wharton).

BA in Economics in 1980 University of Pennsylvania.

MA in business economics 1984 from Wharton School of Business of University of Pennsylvania.

Ph.D. in business economics in 1989 from Wharton School of University of Pennsylvania.

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Tenure-track faculty member in business administration department at the university of Illinois since the Fall term of 1989.

Assistant professor 1989-1995.Associate professor 1995-2002.Full professor of strategy 2003-

Research: vertical integration, contracts, alliances, and corporate governance.

4


Teaching.

BA 389 undergraduate course -- 15 years experience.

BA 401 MBA course -- 9 years experience.

BA 444 executive MBA course -- 9 years experience.

BA 444 international executive MBA course – 5 years experience.

BA 490 ph.D. Course -- 13 years experience.

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Work experience.

Manager at a fast-food restaurant.

Manager at a bookstore.

Worked for project link at university of Pennsylvania.

Worked three years for the Reginald Jones center of corporate strategy at Wharton on scenario planning and the hazardous waste industry.

Consulting experience for government contacting, and for fortune 500 company on vertical coordination.

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Joe’s Insights From 15 Years Teaching:Joe’s Insights From 15 Years Teaching:

Ninety percent of students think that they are above average.

Best advice I ever got on teaching:“Trust the class.”

“We have a cup of knowledge floating in a sea of emotion.” -- John Dewey

7

The Wisdom of Choice:The Wisdom of Choice:

“To try and fail is at least to learn; to fail to try is to suffer the inestimable loss of what might have been.”

– Chester Barnard, The Functions of the Executive

8BARTOL - MANAGEMENT: A PACIFIC RIM FOCUS 3e © McGraw-Hill Australia 200115

Physiological

Safety

Social

Esteem

Self-actualisation

MASLOW’S HIERARCHY OF NEEDS

9

Executive MBA Words of Wisdom from ExperienceExecutive MBA Words of Wisdom from Experience

Executive #1: “My basic business philosophy is to do what is right [leading to] professional growth without expending others in the process. Integrity and experiences are about the only things that one takes to the grave. My life’s goal is to maximize integrity and good things will most likely follow.”

Executive #2: “What I feel is most important for the [management] profession is … providing future challenges and professional growth for personnel in the organization.”

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Executive #3: “Catch people doing things right [and] reward [them]. Remember that all workers are “boss watchers”; thus, lead (don’t manage).”

Executive #4: “The significant problems we face cannot be solved by the same level of thinking we were at when we created them.”

Executive #5: “Trust your instincts, sometimes it’s worth more than your training.”

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Executive #6: “Anyone who claims to have the [complete] answer is probably wrong.”

Executive #7: “Who you are as a person is largely defined by who you perceive yourself to be, not by what you do or what others think of you. It is hazardous to your physical and mental health to hold grudges and bitterness against others. Treat people as if they were priceless, because every person is. Learn to like the work you are given to do. Try to maintain balance in your life. Maintain and nurture a network of friends.”

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Executive #8: “[I]n order to receive the kind of support I need [within the organization], negotiation is the key. I can’t readily impose my goals on others. … That means communicating with … those I rely upon for support via their preferred medium (face to face, over the phone, e-mail, meetings, etc.)”

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What Is Strategic Management About?What Is Strategic Management About?

Understanding how firms create, capture, and sustain competitive advantage.

Analyzing strategic business situations and formulating strategic plans.

Implementing strategy and organizing the firm for strategic success.

14

Basic Elements of the Strategic Management Process

Evaluationand

Control

StrategyImplementation

EnvironmentalScanning

StrategyFormulation

156

Identify current mission and strategic goals

Conduct competitive analysis:•strengths•weakness•opportunity•threats

Develop specific strategies:•corporate•business•functional

carry out strategic plans

maintain strategic control

assess organisational factors

assess environmental factors

Strategy implementationStrategy formulation

16

What Is Strategic Management About?

Sustainable competitive advantage occurs when a firm implements a value-creating strategy of which other companies are unable to duplicate the benefits or find it too costly to imitate.

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What Is Strategic Management About?What Is Strategic Management About?

An important basis for sustainable competitive advantage is the development of resources and capabilities.

Core competencies are resources and capabilities (often related to functional-level skills) that serve as a source of competitive advantage for a firm over its rivals.

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The Evolution of Strategic ManagementThe Evolution of Strategic Management

DOMINANTTHEME

MAINISSUES

CONCEPTS&

TECHNIQUES

IMPLEMENT-ATION

1950s 1960s Early-mid Late1970s Late 1980s Late 1990s1970s early 1980s early 1990s early 2000s

Budgetary Corporate Corporate Analysis of Quest for Strategicplanning & planning strategy industry & competitive innovationcontrol competition advantage The “New

Economy”Financial control Planning growth Diversifica- Positioning Competitive Innovation &

ion advantage knowledge

Budgeting Forecasting & Portfolio Analysis of Resource Dynamic project appraisal investment planning. industry & analysis. sources of

planning Synergy competition Case advantagemarket competences Knowledgeshare management

cooperation

Emphasis on Rise of Diversifi- Industry/market Restructuring Virtual orga-financial corporate planning cation. selectivity. BPR. nization.management departments Quest for Active asset Refocusing Alliances

& formal global management Outsourcing Quest forplanning market share critical mass

The Evolution of Strategic ManagementThe Evolution of Strategic Management

DOMINANTTHEME

MAINISSUES

CONCEPTS&

TECHNIQUES

IMPLEMENT-ATION

1950s 1960s Early-mid Late1970s Late 1980s Late 1990s1970s early 1980s early 1990s early 2000s

Budgetary Corporate Corporate Analysis of Quest for Strategicplanning & planning strategy industry & competitive innovationcontrol competition advantage The “New

Economy”Financial control Planning growth Diversifica- Positioning Competitive Innovation &

ion advantage knowledge

Budgeting Forecasting & Portfolio Analysis of Resource Dynamic project appraisal investment planning. industry & analysis. sources of

planning Synergy competition Case advantagemarket competences Knowledgeshare management

cooperation

Emphasis on Rise of Diversifi- Industry/market Restructuring Virtual orga-financial corporate planning cation. selectivity. BPR. nization.management departments Quest for Active asset Refocusing Alliances

& formal global management Outsourcing Quest forplanning market share critical mass

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Fundamental Changes Facing ManagementFundamental Changes Facing Management

GlobalizationGlobalization

TechnologicalTechnologicalInnovationInnovation

DeregulationDeregulation

DemographicDemographicChangesChanges

PoliticalPoliticalChangesChanges

UncertaintyUncertainty

TurbulenceTurbulence

ChangeChange

ResponsiveResponsive

AdaptiveAdaptive

FastFast

Forces AreCreating

Forces AreCreating

CompaniesMust Be

CompaniesMust Be

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Strategy Relates A Business To Itself and Its Competitive EnvironmentStrategy Relates A Business To Itself and Its Competitive Environment

Mktg. Oper.Strategy

Finance

Acctg. H.R.

Competitive Environment

GovernmentRegulation

Technology

IndustryEnvironment

National/Int’l Economies

OtherCompetitors

RelatedIndustries

21Copyright © by Houghton Mifflin Company. All rights reserved. 6–9

Age DistributionsAge Distributions

1999 2025

Under15

15 to24

25 to34

35 to49

50 to64

65 orolder

21.4%

20.1%

13.9%

13.1%

14%

12.9%

23.5%

18.2%

14.6%

17.2%

12.7%

18.5%

By 2025, more than one-third of thepopulation will be over age 50:

1999 2005 2010 2015 2020 2025

40

The median age will climb to 38:

39

38

37

36

35

0

38

35.5

Figure 6.2

22

Task EnvironmentTask Environment

Customers and Markets: Distributors End users

Competitors: Competitors for Markets Competitors for Resources

23Copyright © by Houghton Mifflin Company. All rights reserved. 10–8

JOB LOSSES

–116,000PepsiCo

–92,153IBM

–86,578GeneralMills

–86,475Kmart

–181,100

–3,400

–16,340QuakerOats

–21,100NationalSemi-

Conductor

GeneralMotors

Toys “ ”Us

+100,000

+ 639,000

+45,000

+36,270

+29,000

+22,900

+21,631

+12,100

JOB GAINS

AmericaOnline

Conagra

DellCorporation

Wal-Mart

Barnesand

Noble

CircuitCity

Albertson’s

DaytonHudson

Representative Jobs Created and Lost by Representative Jobs Created and Lost by Big Business 1990Big Business 1990––19991999

Figure 10.2

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Task EnvironmentTask EnvironmentSuppliers

Suppliers of physical resources Suppliers of human resources Suppliers of financial resources

Regulatory Groups Government Union Special Interest Groups

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Task EnvironmentTask Environment

Technology

Rate of Development

Substitutes

Stage of Product or Industry

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The Basic FrameworkStrategy: the Link between the

Firm and its Environment



THE FIRM

Goals & Values

Resources &Capabilities

Structure & Systems

THE INDUSTRYENVIRONMENT

CompetitorsCustomersSuppliers

STRATEGYSTRATEGY





THE FIRM

Goals & Values

Resources &Capabilities

Structure & Systems

THE INDUSTRYENVIRONMENT

CompetitorsCustomersSuppliers

STRATEGYSTRATEGY

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The Role of Strategy In Business is to Generate and Sustain Value The Role of Strategy In Business is to Generate and Sustain Value via the Linkages Between Position, Resources, and Organizationvia the Linkages Between Position, Resources, and Organization

Position

Resources& Capabilities

Organization

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PositioningPositioning

Scope of the Firm:

Geographic Scope

Choice of businesses (corporate portfolio analysis)

Product Market Positioning within a business

Vertical integration decisions

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ResourcesResources

Tangible Resourcese.g., physical capital

Intangible Resourcese.g., trademarks, “know-how”

Organizational Capabilitiese.g., routines and standard operating procedures

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OrganizationOrganization

StructureFormal Definition of authorityConflict Resolution

SystemsRules, Routines, Evaluation and rewards

ProcessesInformal communication, networks, recruitment

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A Definition of StrategyA Definition of Strategy

Strategy (Quinn, 1980):

“The pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole. A well formulated strategy helps to marshal and allocate an organization’s resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment , and contingent moves by intelligent opponents.”

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Definitions of StrategyDefinitions of Strategy“The term “strategy” is intended to focus on the inter-dependence of the adversaries’ decisions and on their expectations about each other’s behavior.”

– Thomas Schelling The Strategy of Conflict

“Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out those goals.”

– Alfred D. Chandler Strategy and Structure

33

Abell’s Framework for Defining the Business

Who is beingsatisfied?

Customer Groups

What is beingsatisfied?

Customer Needs

How arecustomer needs

satisfied?Distinctive

Competencies

Definitionof Business

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Defining the Business: Defining the Business: The Starting PointThe Starting Point of Strategy of Strategy

Example: Fall of the Railroads

“They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry wrong was because they were railroad oriented instead of transport oriented; they were product oriented instead of customer oriented.”

– Theodore Levitt “Market Myopia”

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Mission Statement and GoalsMission Statement and Goals

It is the function of the top management team to provide the firm’s purpose or “strategic intent.”

– Chester Barnard The Functions of the Executive– Alfred Sloan My Years with General Motors– Kenneth Andrews The Concept of Corporate Strategy

e.g., Komatsu ---> “Encircle Caterpillar”Canon ---> “Beat Xerox”Kodak ---> “Be the leader in the imaging sector”Coca Cola ---> “To put a Coke within ‘arms reach’ of every consumer in the world.”

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Mission Statement and Goals:Mission Statement and Goals:Strategic intent is the leveraging of a firm’s internal resources, capabilities, and core competencies to accomplish the firm’s goals in the competitive environment.

Strategic intent implies a significant stretch of an organization’s resources, capabilities, and core competencies.

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Achieving goals through “operational objectives”Achieving goals through “operational objectives”

Kodak: “Be the leader in the imaging sector”

Customer FocusMore Rapid new product developmentRaise manufacturing qualityReduce costsGain access to critical knowledge through strategic alliancesBenchmarkingMaintain proprietary technology (e.g., silver halide materials technology)

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Fundamental question of the choice of Goals: Planning for what purpose(s)?

Profitability (net profits)Efficiency (low costs)Growth (e.g., increase in total assets, sales, etc)Shareholder Wealth (dividends plus stock price appreciation)Utilization of Resources (e.g., ROE, ROI)ReputationContribution to Stakeholders (e.g., employees, society)Market ShareSurvival (avoid bankruptcy)

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The Manager’s role in balancing expectations

Business Roundtable:“Balancing the shareholder’s expectations of maximum return against other priorities is one of the fundamental problems confronting corporate management.”

Understanding corporate strategy means understanding the competing value claims of multiple stakeholders.

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The Manager’s role in balancing expectationsThe Manager’s role in balancing expectations

Stakeholders are the individuals and groups who can affect, and are affected by, the strategic outcomes achieved and who have enforceable claims on a firm’s performance.

41Copyright © 2001 Houghton Mifflin Company. All rights reserved. 2-2

FIGURE 2.1

Stakeholders and the EnterpriseStakeholders and the Enterprise

Contributions

Contributions

Inducements

Inducements

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Organizational culture refers to the complex set of ideologies, symbols, and core values shared throughout the firm and that influences the way it conducts business. It is the social energy that drives --- or fails to drive --- the organization.

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There are inherent conflicts of goals within the firm. In The Reckoning, David Halberstam documents the hard fought goal disparities between MBAs on Ford Motor Company’s finance staff, who stressed strategies with clear, quantifiable, profit-maximizing prospects, and the engineering-oriented “product” people, who urged an accelerated pace of design improvement and were more inclined to accept added cost to improve product quality.

44

A A Key Performance Measure:Key Performance Measure:Sustainable Competitive AdvantageSustainable Competitive Advantage

For a company, the definition of success is superior economic performance.

To achieve superior economic performance, a firm has to create a sustainable competitive advantage (SCA).

SCA is achieved by a value-creating strategy that cannot be (easily) duplicated.

45

Key Drivers of Value Creation and Key Drivers of Value Creation and Sustainable Competitive Advantage:Sustainable Competitive Advantage:

Generating value can be accomplished through:

REVENUE drivers

COST drivers

RISK drivers

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Sources of Superior Profitability

RATE OF PROFIT ABOVE THE

COMPETITIVE LEVEL

How do we make

money?

INDUSTRY

ATTRACTIVENESS

Which businesses

should we be in?

COMPETITIVE ADVANTAGE

How should we compete?

CORPORATE STRATEGY

BUSINESS STRATEGY

Sources of Superior Profitability

RATE OF PROFIT ABOVE THE

COMPETITIVE LEVEL

How do we make

money?

INDUSTRY

ATTRACTIVENESS

Which businesses

should we be in?

COMPETITIVE ADVANTAGE

How should we compete?

CORPORATE STRATEGY

BUSINESS STRATEGY

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The Levels of Strategy

R&D

HR

Finance

Production

M ktg/Sales

D ivision A

R&D

HR

Finance

Production

M ktg/Sales

D ivision B

R&D

HR

Finance

Production

M ktg/Sales

D ivision C

C orpo rateH eadquarte rs

Corporate - General Electric

Business - Home Appliances

Functional - e.g., Production

48

Corporate StrategyCorporate Strategy

At the corporate level, value creation can occur if the individual parts of a firm are integrated into a coherent whole.

Corporate strategy is the way a company creates value through the configuration and coordination of its multi-market activities.

49

Eclectic Definitions of Strategy and Strategic Management

Mintzberg’s 5 P’s of Strategy:

PlanningPloys (non-credible strategies)Pattern (“emerging strategy”)Position (firm “dynamic fit” with environment)Perspective (Ideology and culture)

50BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E © McGraw-Hill Australia 20019

Managers as decision makersAssumptions of the Rational Model

Managers as decision makersAssumptions of the Rational Model

Rationaldecisionmaking

Rationaldecisionmaking

An optimal decision is possible

An optimal decision is possible

All relevant informationis available

All relevant informationis available

All relevant information is understandable

All relevant information is understandable

All alternatives are knownAll alternatives are known

All possible outcomes knownAll possible outcomes known


Managers as decision makersSatisficing

Managers as decision makersSatisficing

‘Satisficing’decisionmaking

‘Satisficing’decisionmaking

Time constraintsTime constraints

Limited ability to understand all factors

Limited ability to understand all factors

Inadequate baseof information

Inadequate baseof information

Limited memory ofdecision-makers

Limited memory ofdecision-makers

Poor perception of factorsto be considered

in decision process

Poor perception of factorsto be considered

in decision process

52

1-40

Improving Strategic Improving Strategic DecisionDecision--MakingMaking

Prior Hypothesis

Bias

EscalatingCommitment

Reasoningby

Analogy

Representa-tiveness

Illusion of

Control

Copyright


Techniques to improve group decisionsTechniques to improve group decisions

Member diversityMember diversity

Bettergroup

decisionmaking

Bettergroup

decisionmaking

Expert membersExpert members

Devil’s advocatesDevil’s advocates

Groupware useGroupware use

Dialectic inquiryDialectic inquiry


TECHNIQUES TO ENHANCE GROUP CREATIVITYTECHNIQUES TO ENHANCE GROUP CREATIVITY

BrainstormingBrainstorming

Bettergroup

creativity

Bettergroup

creativity

Nominal grouptechnique

Nominal grouptechnique

DelphitechniqueDelphi

technique

Scenario analysisScenario analysis

55

Concepts and Skills that we will develop Concepts and Skills that we will develop for this course in Strategic Management:for this course in Strategic Management:

Industry AnalysisFirm Analysis - Resources and CapabilitiesBusiness StrategyCompetitive DynamicsCorporate StrategyGlobal Strategy

56

O u r L e a r n i n g G o a l s : P u s h i n g D o w n T h r o u g h B l o o m ’ s T a x o n o m yO u r L e a r n i n g G o a l s : P u s h i n g D o w n T h r o u g h B l o o m ’ s T a x o n o m y

1 . K n o w l e d g e : r e m e m b e r m a t e r i a l ; k n o w t e r m s , f a c t s , p r o c e d u r e s , b a s i c c o n c e p t s

2 . C o m p r e h e n s i o n : g r a s p m e a n i n g ; u n d e r s t a n d f a c t s , i n t e r p r e t c h a r t s , t r a n s l a t e v e r b a l t o m a t h e s t i m a t e c o n s e q u e n c e s

3 . A p p l i c a t i o n : u s e m a t e r i a l i n n e w s i t u a t i o n s ; a p p l y c o n c e p t s t o r e a l s i t u a t i o n s , f o l l o w a p r o c e d u r e

1 . K n o w l e d g e : r e m e m b e r m a t e r i a l ; k n o w t e r m s , f a c t s , p r o c e d u r e s , b a s i c c o n c e p t s

2 . C o m p r e h e n s i o n : g r a s p m e a n i n g ; u n d e r s t a n d f a c t s , i n t e r p r e t c h a r t s , t r a n s l a t e v e r b a l t o m a t h e s t i m a t e c o n s e q u e n c e s

3 . A p p l i c a t i o n : u s e m a t e r i a l i n n e w s i t u a t i o n s ; a p p l y c o n c e p t s t o r e a l s i t u a t i o n s , f o l l o w a p r o c e d u r e

4 . A n a l y s i s : b r e a k m a t e r i a l i n t o c o m p o n e n t s & u n d e r s t a n d s t r u c t u r e ; r e c o g n i z e l o g i c a l f a l l a c i e s , d i s t i n g u i s h f a c t a n d i n f e r e n c e , e v a l u a t e r e l e v a n c y o f d a t a

5 . S y n t h e s i s : i n t e g r a t e p a r t s t o m a k e a n e w w h o l e , i n t e g r a t e l e a r n i n g t o s o l v e a p r o b l e m

6 . E v a l u a t i o n s : j u d g e l o g i c a l c o n s i s t e n c y , j u d g e w h e t h e r c o n c l u s i o n s a r e s u p p o r t e d b y f a c t s

4 . A n a l y s i s : b r e a k m a t e r i a l i n t o c o m p o n e n t s & u n d e r s t a n d s t r u c t u r e ; r e c o g n i z e l o g i c a l f a l l a c i e s , d i s t i n g u i s h f a c t a n d i n f e r e n c e , e v a l u a t e r e l e v a n c y o f d a t a

5 . S y n t h e s i s : i n t e g r a t e p a r t s t o m a k e a n e w w h o l e , i n t e g r a t e l e a r n i n g t o s o l v e a p r o b l e m

6 . E v a l u a t i o n s : j u d g e l o g i c a l c o n s i s t e n c y , j u d g e w h e t h e r c o n c l u s i o n s a r e s u p p o r t e d b y f a c t s

5716

CrossCross--Functional Product Functional Product Development TeamsDevelopment Teams

facilitate efforts to integrate facilitate efforts to integrate activities associated with different activities associated with different organizational functionsorganizational functions

design, manufacturing, marketing, design, manufacturing, marketing, etc.etc.

new product development new product development processes can be completed more processes can be completed more quicklyquickly

products can be more easily products can be more easily commercialized when crosscommercialized when cross--functional teams work effectivelyfunctional teams work effectively

Cross functionalCross functionalproductproductdevelopment teamdevelopment team

58

Importance of Cross-Functional TeamsImportance of Cross-Functional Teams

Chrysler’s “platform teams” composed of 600 engineers and 289 suppliers developed their Neon car in 42 months at a development cost of $1.3 billion.

In contrast, Ford’s Escort took 5 years to develop at a cost of $2 billion.

Saturn took 7 years at a cost of $5 billion.

59

Personnel Development At Honda Motor Co.

The “T-shaped” Engineer

Breadth

Depth

60

Summary “Take-aways”:Providing PURPOSE is an important Providing PURPOSE is an important function for the executive.function for the executive.

One important purpose is to One important purpose is to CREATE VALUE.CREATE VALUE.

Value creation can lead to Value creation can lead to SUSTAINABLE COMPETITIVE SUSTAINABLE COMPETITIVE ADVANTAGE.ADVANTAGE.

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Strategic Management/ Business Policy Joe Mahoney