Foundations of Strategic Management

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Lecture 4

• Foundations of Strategic Management

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Objectives

• After this lecture you are able to
• explain the nature of strategic management
• list and explain the major component of the
  strategic management process
• demonstrate an understanding of a mission
  statement and its purpose
• explain the difference between a goal and an
  objective
• conduct a SWOT analysis
• identify and explain different strategies
  available to an organisation
• outline what is involved in strategy
  implementation and explain its importance and
• explain how evaluation and control is linked to
  formulation of the strategic plan

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Topics

• The planning process
• Linking goals plans
• The concept of strategic management
• The role of competitive analysis in strategy
  formulation
• Strategy implementation and evaluation
• Strategic Management in todays environment

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What is Planning?

• A process that involve setting goals
  developing plans leads to goal attainment and
  ultimately, to organisational efficiency
  effectiveness.

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Why do managers plan?

• Planning provides direction to all employees in
  an organisation
• Planning assist to cope with uncertainty by
  forcing a manager to look ahead, anticipate
  change, consider the impacts of the change and
  take appropriate actions.
• Planning establishes goals or standards that are
  used in controlling.

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The Planning Process
Goal attainment (organisational efficiency
effectiveness)
plans
mission
Goals (Objectives)
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The Concept of Strategic Management

• A strategy is an action plan that a company takes
  to attain one or more of its goals.
• Strategic management is a process of formulating,
  implementing, and evaluating cross-functional
  decisions that enable an organisation to achieve
  its objectives (David, 2003).

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Critical Attributes of Strategic Management

• It is a process of Integrating management,
  marketing, finance/accounting, production/operatio
  ns, research and development, and computer
  information systems to into a plan of attack or
  strategy to achieve the aims of an organisation.
• Aside from formulation and implementation the
  process also involves a continuous evaluation of
  the organisations performance.

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Importance of strategic management

• Gain competitive advantage
• Direct organisation members as to where to put
  their efforts
• Show a need for innovation, giving an organised
  approach for encouraging new ideas related to
  strategies.
• Strategic management process can involve managers
  at various levels in planning, making it more
  likely they will understand plans and be
  committed to them

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Features of Strategic Management

• It deals with the long term.
• It focuses on oraganisational effectiveness and
  efficiency.
• It requires a broad and comprehensive knowledge
  of the organisation and its environment.
• Senior managers in consultation with many others
  make key strategic decisions.
• It occurs at different organisational levels.

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The Process of Strategic Management
Strategy Formulation
Strategy Implementation
Strategy Evaluation
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Strategy Formulation
Developing Vision Mission
Identifying
Opportunities Threats (external analysis)
Determining
Strengths Weaknesses (internal analysis)
Establishing
Long-Term Goals and Objectives
Generating Alternative
Strategies
Choosing Strategy
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Organisational Mission

• Essentially, planning builds on the
  organisations mission, the organisations
  purpose or fundamental reason for existence.
• i.e. What is our business?

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Organisational Mission

• Mission statement may
• address customers, products/services, location,
  technology, concern for survival, philosophy,
  self-concept, concern for public image, concern
  for employees (David 1989)

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Mission Statement

• The Australian Maritime Colleges mission is the
  provision of the highest quality education,
  training and consulting, and the conduct of
  applied research of international distinction, to
  meet the needs of the maritime sector.
• Australian Maritime College
• To excel as the world leader in providing
  seaport and logistics services of the best value
  to our customers.
• PSA corporation Limited

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Mission Statement

• An effective mission has better been developed
  with inputs by all the member of an organisation.

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The Role OF Competitive Analysis in Strategy
Formulation

• SWOT analysis (Strengths, Weaknesses,
  Opportunities, and Threats), it relies upon
• Environmental assessment
• Mega and task environmental factors
• Porters five competitive forces model
• Organisational Assessment
• Organisational resources capabilities
• Distinctive competencies rare and difficult to
  imitate resource of an organisation.

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Porters Five Competitive Forces Model

• Analyse competitions nature and intensity in
  terms of five major forces
• Rivalry
• Bargaining power of customers
• Bargaining power of suppliers
• Threats of new entrants
• Threat of substitute products or services

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Competitive Analysis Porters Five-Forces Model
Potential development of substitute products
Rivalry among competing firms
Bargaining power of suppliers
Bargaining power of customers
Potential entry of new competitors
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• Example Indonesia container terminal
  competitiveness analysis using five forces model
• Source Coltof, H. 2000, port organisation and
  management in developing countries, international
  edition.

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• Bargaining power of suppliers
• Labour force Indonesia and Malaysia still have
  limits in work force
• Fuel easy to find.
• Contractors to build port facilities and to
  provide equipment there are a number of
  contractors
• Conclusion as a whole, bargaining power of
  suppliers is weak.
• Threat of substitute is weak
• Substitution of container transportation?
• Substitute container terminal?

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• Rivalry among existing competitors
• In domestic (Indonesia), container terminals
  that already exist are Tg. Perak and Belawan, but
  in overall capacity, Port of Tanjung Priok is
  still a leader among them. In South East Asia,
  port of Singapore is a leader, Port Kelang
  relatively comparable with Port of Tanjung Priok.
  
• Conclusion
• Competition among domestic competitors is low,
  but competition in South East Asia is strong.

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Nature of Organisational Goals

• Benefits of goals
• Increase performance
• Clarify expectations
• Facilitate control
• Increase motivation

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Levels of Goals

• Top managers
• Organisational perspective
• Middle managers
• Departmental perspective
• 1st level managers
• Unit/individual perspective

strategic goals
strategic plans
tactical goals
tactical plans
operational goals
operational plans
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Goals Content

• Examples
• Westpacs goal is to be the bank of first
  choice for customers in each of our key markets
  and business
• One of the Sydney Port Corporations finance
  goals is effective asset management
• The purpose of Melbourne Port Corporation is
• to contribute to the sustainable economic and
  social development of Victoria by providing the
  best connected and most successful port in
  Australia.
• How do you think these stated goals? Are they
  meaningful guides to an organisation?

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Goals Content

• GOAL CONTENT
• Challenging
• Attainable
• Specific measurable
• Time-limited
• Relevant
• In other word, strategic goal should be SMART
• Ex
• Achieve a 15 return on investment for all
  shareholders

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Approach to establish goals

• Traditional goal setting
• Setting goals at the level of the organisation
  and then broken down into subgoals for each level
  of the organisation.
• Management by objectives (MBO)
• The difference between MBO and traditional goal
  setting approach is that rather than using goals
  only as controls, MBO uses them to motivate
  employees as well.

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We need to improve the companys performance
I want to see a significant improvement in this
divisions profit
Top managements objective
Division Managers objective
Increase profits regardless of the means
Dont worry about quality just work fast
Department managers objective
Individual employees objective
Traditional goal setting source Robbins et
al.(2003)
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MBO

• Process through which specific goals are set
  collaboratively for the organisation as a whole
  and every unit within it the goals are then used
  as a basis for planning, managing organisational
  activities, and assessing and rewarding
  contributions.

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MBO

• Steps in the MBO process
• Develop organisational goals
• Establish specific goals for departments
• Formulate action plans
• Implement maintain self-control
• Review progress periodically
• Appraise performance

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Formulating Various Levels of Strategy

• Corporate level strategies seek to determine
  what businesses a company should be in or wants
  to be in. Strategies include
• Growth
• Stability
• Renewal strategies to address organisational
  weaknesses that are leading to performance
  declines. Ex retrenchment, turnaround strategies
• Corporate portfolio analysis, for example BCG
  matrix (cash cows, starts, question marks, dogs)

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Formulating Various Levels of Strategy

• Business level strategies seek to determine how
  an organisation should compete in each of its
  businesses
• generic strategy (cost leadership,
  differentiation, focus)
• Functional level (specific operations of each
  business)
• Functional level strategies spell out how
  functional areas can support business-level
  strategy
• e.g. an RD department might accelerate
  innovation to provide new products before
  competitors

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Levels of Strategies
Corporate level
Business level
Functional level
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Strategy Implementation
Annual Objectives
Policies
Employee Motivation
Resource Allocation
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Strategy Implementation

• Carrying out strategic plans
• Technology
• Human Resources
• Reward systems
• Decision processes
• Structure
• culture

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Strategy Evaluation
Internal Review
External Review
Performance Measurement
Corrective Action
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Strategy Evaluation

• Maintaining strategic control
• Monitoring environment
• Assessing effects of actions
• Monitoring results

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Comprehensive Strategic Management Model
Strategy implementation
Strategy formulation
External Audit
Vision Mission And strategic goals
Implement Strategies
Measure Evaluate Performance
Competitive Analysis SWOT
Generate, Evaluate, Select Strategies 1.Corporate
2.Business 3.functional
Internal Audit
Source David (2005)
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Strategic Management in todays environment

• The rule of three competitive forces in an
  industry will create a situation where three
  companies dominate any given market if kept
  relatively free of government interference.
• New directions in organisational strategies
• Strategies for applying e-business techniques
• Customer service strategies (product, service,
  communication, culture)
• ex New Balance Athletic Shoes shoes in
  varying widths,
• 5 star business in Maclean, NSW operates with
  a motto we
• Pack, We Carry, We Care, providing
  extra services for customers
• Innovation strategies (product development,
  process improvement, innovation timing first
  mover)

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Activity

• Singapore Airline (video clip)
• Singapore port authority
• Conduct a SWOT analysis for Royal Caribbean
  Cruise Ltd.