Prof' Ursula Liebsch

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Strategic Management

• Prof. Ursula Liebsch

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Contents

• Theory
• Values and objectives
• Environmental analysis
• Business analysis
• Portfolio analysis
• Choice of strategy
• Strategy implementation

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Literature

• Müller-Stewens/Lechner Strategisches Management
• Bea/Haas Strategisches Management
• Lautenburg/Doppler Change Management
• Dietrich Dörner die Logik des Mißlingens
• Fredmund Malik Führen, Leisten, Leben
• Henry Mintzberg Mintzberg on Management

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1. Theory
Strategy Views on how a company can use its
actual and potential strengths in order to deal
effectively with changes in its environment.
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Short historical overview changes in
business environment and management theories

• 50s
• Cost effective production of mass products,
  assembly line as dominating technology,
• Scientific Management (FredericTaylor),
  Operations Research

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Changes in business environment

• 60s
• Priority of market development using marketing
  methods
• Reorientation from production to marketing,
  development of complex marketing strategies

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Changes in business environment

• 70s
• Rise in oil prices and currency crises,
  saturation of markets, increase of competition
• Strategic business planning as answer to an
  increase in complexity and dynamics external
  analysis becomes increasingly important

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Changes in business environment

• 80s
• Globalisation, increasing importance of
  communication
• technology, environmental protection
• Increasing importance of adjustment to changing
• conditions in environment, reorientation from
• technocratic business management to
  evolutionary
• business management
• Term used by U. Steger ( Kirsch)

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Changes in business environment

• Business and state become decreasingly centres
  of
• action and increasingly interaction units
• Increasing importance of systemic
• Management theories (School of St Gallen)
• Trend of high-value production
• Recession
• Integration of electronics in machine and auto
  industry. System solutions instead of product
  orientation

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Changes in business environment

• 90s
• Revolutionary changes in Eastern Europe and
  reunification of Germany
• Increasing dynamics in technological development
• New Economy and E-Commerce
• Increasing importance of global financial market
• Emergence of global players
• Increasing environmental problems

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Changes in business environment

• Early 2000
• Increase in competition
• Decrease in prices in heavy industry
• Government withdrawal from business
• New dimension of environmental problems
• Growing uncertainty because of increasing
  terrorism
• Recession and growing number of bankruptcies

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Response of management science

• Integration of all management subsystems
• Benchmarking
• Lean Production
• Lean Management
• Business Reenginering

• Total Quality Management
• Virtual Organisation
• Learning Organisation
• Knowledge Management
• Balanced Scorecard

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Requirements of Management

• Complexity of problems requires systematic
• approach
• Rapid change requires evolutionary management,
• understanding the ability to change as
  survival skill
• Integration of environment protection in
  objectives
• and in planning system

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Requirements of Management

• Organization structure with flat hierarchies,
  decentred
• decision-making processes and open
  communication
• structures
• Innovation management
• High problem awareness and problem solving
• competence
• Ability to inspire

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Fields of action

• Business
• all functions concerning performance
• Cost reduction
• Purchase
• Production
• Waste disposal
• Risk-Management

• Market
• Customer advantage
• Competition
• Trade

• Product
• Product life cycle

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Current situation of research strategy
Theory is a net which is cast out by us to
capture the world. We are trying to reduce the
possibility of slipping through the net. Karl
Popper
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3 Starting points

• Market oriented approach
• Resource oriented approach
• Evolution oriented approach

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1. Market oriented approach
Market structure (Structure) Market behaviour
(Conduct) Market results (Performance)
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The basis of market oriented approach

• The basis of market oriented approach is the
  Mason/Bain Structure-Conduct-Performance-
  Paradigm.
• Competitive advantage is explained through the
  structure of the industry and the strategic
  behaviour of companies.
• The company is seen from the perspective of the
  market. (OUTSIDE-IN)
• Michael Porter Competitive Strategy and
• Competitive Advantage

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Comments on market oriented approach

• This approach puts the activities of the
  industry first and
• focuses on established industries. The
  approach is
• reactive and defensive.
• Strategies which move market boundaries and
  create
• new markets are not considered.
• Resources within the company are neglected.

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2. Resource oriented approach
Potential (Resources)
Strategy
Performance (Profit)
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Resource oriented approach

• Resource oriented approach emphasizes the
  INSIDE-
• OUT perspective.
• The quality of the resources is seen as the
  source of the
• continuing success.
• The task of strategic company management is to
  build on
• and further develop the resources.
• The task of the company is to bring about
  innovations.
• Penrose, E.T. Theory of the Growth of the Firm

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Variations on the resource oriented approach

• Concept of core competences
• Knowledge-based view

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Definition of Core Competence

• Core Competence are packages of skills, which
• represent the basis of the core products and
  the end
• products of a company and which are
  characterized by
• being difficult to
• Produce
• Imitate
• Substitute.
• Prahalad/Hamel Core Competence

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Knowledge oriented approach

• According to Nonaka/Takeuchi (knowledge
  creating)
• and Polani (Knowledge) knowledge is the
  decisive
• competitive advantage in a dynamic
  environment.
• Competitive products today contain above all
• intelligence, which is created by knowledge.

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3. Evolution oriented approach

• The company is seen as a system which, because of
  the increasing complexity and dynamics, can only
  by controlled up to a certain point.
• The company as a puppet of the environment
• Learning ability, flexibility and self regulation
  of the sub systems are considered to be
  competitive advantages.

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2 Schools of thought

• School of St. Gallen
• Representatives
• Ulrich, Malik, Probst, Gomez
• Systemic Management
• Trial and error self-organisation, room for
  spontaneous regulatory processes

• Evolutionary management
• according to Kirsch
• Advancing organization
• Meta competences
• Learning ability as basis
• for ability to develop
• Sensitivity as opposed to the interests and
  influence of stakeholders

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Basis of effective management

• Result orientation
• Contribution to the whole
• Concentration on little
• Use of strengths
• Confidence-building
• Positive thinking

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External analysis
Internal- analysis
Values and goals
Opportunities threats
Strengths weaknesses
Portfolio- analysis
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2. Values and goals

• Business culture is the sum of all values and
  goals of a business which characterise
  observation and behaviour.

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Hierarchy of goals in strategic management
Vision
Company principle
Business objectives
Business domain goals
Function domain goals
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2 Concepts of Corporate culture

• A business has culture (technocratic version,
  which implies that culture can be created)
• Culture follows strategy and
• 2. Business as organizations are culture,
  culture has developed and arises from actual
  reality,
• strategy follows culture, cultural awareness
  instead of cultural controlling

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Principle
Business principles are qualitative
representations which are makeable and desirable,
they form the companys political goal and policy
statements. As business philosophy the principle
performs the function of the most important
action oriented value system of company
management and constitutes business legitimating
of a companys actions.
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Companies of the future are like symphony
orchestras

• The management (conductor) of a company
  (orchestra) has the task of presenting the
  employees (musicians) with mutual goals, the
  score, provided that all act within a shared
  value system.
• The conductor can then hone the skills of the
  individual to the performance of the whole
  orchestra.

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Values

• In networks of independent specialists the
  influence of traditional hierarchies, management
  structures and control mechanisms is reduced.
• Company management can secure cohesion,
  coordination and cooperation with common values
  which complement the structure.

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Goal system of a company

• Main goal

Strategic goal
Operative goal Qualitative and quantitative
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Goal system of a company

• Longterm safeguarding of the ability to
  compete

Performance goal
Market goal

• Growth of turnover
• Market share
• Opening of new markets

• Social responsibility
• Protection of environment
• Quality

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Revenue goals

• Revenue goals serve to satisfy the company owner.
• Profitability
• Dividend or profit
• Internal finances

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Important indicators

• Earnings before taxes
• RoI (Return on Investment) Profit/Capital
• Profit/Sales
• Turnover/Capital
• Cash Flow revenues costs /- changes in funds

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Market goals
Market goals are more precise company goals

• growth in sales
• market share
• opening of new markets.

These contain long term sales goals e.g. market
position goals (cost leader), market share or
planned investments
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Performance goals

• Performance goals meet the requirements of a
  business. In the long term neglecting these
  requirements can endanger the ability to survive.
  
• e.g. boycott of goods

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Process of goal finding
1. Quest for goals 2. Operationalisation (focus
on action) 3. Analysis and ranking of goals (goal
pyramid) 4. Testing and feasibility
(resources) 5. Selection of goals 6.
Implementation of goals 7. Checking of goals
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Conflict of goals

• Market goals and revenue goals usually correlate
  positively, they are complementary.
• Between revenue and market goals on the one hand
  and performance goals on the other there is often
  a conflict.
• The challenge is to balance out different goals.

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Conflict of goals (2)

• A complete goal system develops from the initial
  strategic aims (normative principle) via planning
  processes.
• Only when the effectiveness of strategies has
  been tested are clear goals defined.
• It is always a repetitive process.
• Knowing what you want means knowing what you can
  do.

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Ground rules for determining goals

• Concentration on few goals (is this really
  necessary?) At the beginning it should say What
  dont I want to do anymore?
• Effective executives do first things first and
  second things ... NOT AT ALL! (Peter Drucker)
• Quantify and time goals as much as possible .
• There should be a person behind each goal not a
  group!
• Determine required resources.
• Indicate agreed measures.

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External analysis
Internal- analysis
Values and goals
Opportunities threats
Strengths weaknesses
Portfolio- analysis
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3. External analysis

• Strategic star of company management
• Indicator-approach
• Stakeholder value-approach
• External analysis in 4 steps
• Scenario-Analysis

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Strategic Star of companies environment
Globalisation
Values
Complexity
Company
Technology/ Information
Ecology
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Indicator analysis

• Indicator analysis distinguishes 5 external
  sectors
• Macro economic environment
• Technical environment
• Politico-legal environment
• Population
• Socio-cultural environment
• Ecological environment
• acc. to Steinmann/Schreyögg and Bea/Haas

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Macro-economic development Sectors
Indicators

• Trends little growth
• Unemployment becomes a long-term problem

• Growth of GDPs
• Rate of unemployment
• State debts
• Balance of payments
• Inflation
• Exchange rate

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Demographic development Sectors
Indicators

• Birth rate
• Age spread
• Regional mobility
• Increase in single households (already 50 in
  overcrowded areas)

• Rising average age
• Two new target groups
• Young double income with no kids (dink(y))
• Wealthy seniors 50-70

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Technological development

• Trends Reduction of product-life cycles and
  increasing development time
• Process innovation in integrated, connected, and
  flexible production structures
• Nanotechnology

• Product innovation
• Process innovation
• Increase in effective energy use
• Use of renewable energy
• Trends in new materials

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Changes in political environment

• Trends Increasing influence of the EU on law
  and politics
• Integration of markets
• Dependence on world politics

• Changes in party landscape
• Change of government
• Initiatives of authorities
• EU-deregulation
• Eastward expansion
• International institutions

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Changes in business environment

• Safeguarding jobs
• Internal and external security
• Environmental awareness
• Individualization

• Importance of NGOs
• Change of ideas on work and leisure
• Ecological awareness and action
• Self realization
• Personal independence

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Ecological environment

• Destruction of ecological systems
• Damage to basic functions
• Manner, intensity and extent of strains on the
  environment
• Situation of resources
• Energy situation

• Global, continental, national, regional, local
• Supplying, supporting regenerating function
• Living and non-living nature
• Location, scope, availability and dependence on
  resources
• Intensity, renewability?

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Stakeholder value-approach

• Stakeholder-approach
• Stakeholders can be seen as people who have
• a relationship with the company.
• The field of external environment analysis is
• so broadly defined as long as there is a
• perceived link to the company.
• Freeman (Strategic Management)

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Stakeholder-approach Influence factors of a
business
Company
Business actions
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External analysis in 4 steps

• Scanning Identification of stakeholders
• 2. Monitoring Identification of relevant
  trends
• 3. Forecasting Determination of
  direction, extent, intensity of changes in
  external environment
• 4. Assessment Evaluation of
  results

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Scenario-Analysis

• A scenario is a description of future
  developments
• applying alternative basic conditions.
• The goal is not to make exact prognoses but to
• devise various alternatives for the future.

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Scenario-technique

• By scenario- technique Oberkampf understands an
  integrated, systematic view of the future which
  can be realised, starting from the present
  situation, based on and observing plausible
  developments and events and the conditions of
  future situations.
• Oberkampf, V. Szenariotechnik

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Scenario- technique
Best case scenario
Worst case scenario
Present
Future
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Scenario analysis in 3 phases

• Analysis
• Definition of research subjects
• Identification and structuring of relevant
  environment sectors
• Analysis of the relation and the degree of
  influence
• 2. Projections
• 3. Assessments

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ad 2. Projection

• Description of indicators to define the
  environment sectors.
• Determination of actual values and trends.
• Development of consistent hypotheses of
  alternative developments taking critical factors
  into consideration.
• Creation of at least 3 scenarios.
• Analysis of hypothetical disturbances.

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Ad. 3 Assessment

• Analysis of consequences of applied scenarios
  and
• comparison with the strengths and weaknesses
  of a
• company.
• Development of reaction strategies
• Drafting of measures to build up the identified
• strengths and to conquer identified weaknesses

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External analysis
Internal- analysis
Values and goals
Opportunities threats
Strengths weaknesses
Portfolio- analysis
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4. Internal (business) analysis

• When the goals are defined and relevant external
  factors have been analysed, the next step is the
  internal business analysis, which could become a
  success with
• a strengths and weakness (SWOT) analysis.
• The task of a business analysis is to make the
  companys potential consistent with the demands
  and requirements of the business environment.

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Strengths and weaknesses (SWOT) analysis

• From the resources (potential) of a
• company, strategic success factors can
• be defined.
• Strategic success factors are success-
• relevant strengths and weaknesses of a
• company.

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Definition of Resources

• Resources or potentials represent specific
  strengths, which enable the company, to
  successfully position itself in a changing
  environment and to secure long-term business
  success.
• (Penrose)

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Classification of Resources

• Tangible Assets are the assets which are
• mentioned on the balance sheet.
• Intangible Assets are immaterial assets, such as
• image, business culture, technological
  know-how.
• Human Resources comprise know-how, skills,
• experience, employees motivation
• Organizational Capabilities (management skills)
• acc. to Grant, Strategy

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Bea/Haas Classification

• Performance potential
• Purchase
• Production
• Sales
• Personnel
• Capital
• Technology

• Management potential
• Planning
• Control
• Information
• Organization
• Business culture

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Performance Strategic potential Success
factors

• Purchase

• Relative Price of the production factors
• Quality of primary products
• Coordination with suppliers (just-in-time
  principle)
• Degree of dependence on suppliers

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Performance Strategic potential success factors

• Capacity of production equipment
• Effectivity of production equipment
• Flexibility of equipment
• Range of production
• Cost structure

• Production

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Performance Strategic potential success factors

• Sales

• Quality of products
• Brand names
• Duration of patents
• Age spread of the products
• Quality of distribution system
• Quality of after-sales service
• Pricing
• Ability to deliver
• Market share and customer loyalty

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Performance Strategic potential success factors

• Personnel

• Qualification
• Motivation
• Age and education
• Learning ability
• Identification with the company
• Business actions
• Teamwork

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Performance Strategic potential success factors

• Capital

• Access to capital market
• Degree of debt
• Own financial resources
• Financial resources of affiliated companies

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Performance Strategic potential success factors

• Technology
• (research and
• development)

• Willingness to innovate
• Research and development costs
• Research efficiency
• Patents, licenses

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Management- Strategic potential success factors

• Planning

• Closed planning system
• Flexibility of planning
• Use of planning techniques

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Management- Strategic potential success factors

• Control

• Closed control system
• Coordination of management and planning
• Use of control techniques

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Management Strategic potential success factors

• Information

• Strategically oriented business account (e.g.
  target costing)
• Early warning systems
• Computer aided information systems

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Management Strategic potential success factors

• Organisation

• Number of hierarchic levels
• Degree of decentralization
• Flexibility of the organization
• Learning ability of the organization
• Cooperation with other companies

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Management Strategic potential success factors

• Strength of the business culture
• Degree of open-mindedness
• Ability to innovate

• Business culture

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Strengths weaknesses profile
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External analysis
Internal- analysis
Values and goals
Opportunities threats
Strengths weaknesses
Portfolio- analysis
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5. Portfolio-Analysis

• Following the strengths-weaknesses approach the
• internal and external business analyses can be
  combined.
• Opportunities can be found where external
• developments influence the companys defined
• strengths.
• Threats can be found where external developments
• influence the companys weaknesses.

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Example for SWOT-Analysis Market opportunities
and threats
External analysis 1. Macro-economic
environment 2. Technological environment 3. Legal
and political environment 4. Socio-cult.
environment 5.Ecological environment
Internal analysis Rise of energy
prices Technological know how Financial resources
to implementation of new laws, regulations.
Open-mindedness versus ecological
problems. Ecological visibility
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6. Choice of Strategy

• Moltke Strategy is the continuing education of
  the
• original guiding ideas which arise from
  continually
• changing conditions
• A strategy needs to be formulated which values
• design.
• Basic strategies acc. to Meffert/Kirchgeorg
• Norm strategies acc. to Steger

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Strategic adjustment alternatives

• Defensive behaviour
• reactive
• static
• observant
• passive
• adjusting
• isolated
• Competition
• Acceptance
• Looking at the present
• Crisis management

• Offensive behaviour
• active
• dynamic
• speculative
• innovative
• integrated
• independent
• Competition
• Design
• Looking to the future
• Risk management

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Basic strategies
Innovation Adjustment Withdrawal Passivity Resista
nce
Strategische Grundsatzentscheidungen
(Meffert/Kirchgeorg)
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Passivity

• Ignorance of existence of problem in general
• Ignorance of relevance of problems to own
• decisions.
• Ignorance of solvability of problems
• No action

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Innovation strategies

• Problem areas are localised
• Future oriented problem solutions are developed
• Innovative means improved or new problem
• solutions relating to products, service,
  processes and
• social systems when existing or new insights
  are
• applied.

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Basic strategies
Competitive Strategies
Cost leadership Quality management Niche/entire
market orientation Timing strategy
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Competition strategies
1. Cost leadership
2. Differentia-tion
broad goal
Field of competition
3A. Focus on costs
3B. Focus on differentiation
precise goal
less costs
differentiation
Competitive advantages
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Cost management

• Competitive advantages by low unit prices which
  enable low prices by means of
• Qualified employees
• Innovation in process
• Standardisation
• Rationalisation
• Ex. Energy saving, recycling, substitution

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Quality management

• Quality management or differentiation strategy
  tries to gain competitive advantages by
  performing better through
• Product development
• Use of product
• After sales

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Niche/entire market orientation

• The strategy of quality management aims at an
• increased, possibly enlarged market cover and
• puts a good market position first.
• If this is not known, a quality oriented niche
• strategy specilised on certain market sectors
  can
• be useful.

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Design-Competition-Matrix
Outcomes Design
Rise in prices
Decrease of performance- characteristics
Additional benefits
Innovation
Competitive- strategies
- 0 0

• Cost leadership
• Differentiation
• Niche politics
• cost oriented
• differentiated

0 -
- 0 0
0 -
- Negative relationship, 0 neutral relationship
positive relationship
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Market-environment-reactions-matrix
Consequences
Reduction of useful properties
Rise in- costs
Added value
Innovation
Market sensitivity
/0
sensitive potentially sensitive unsensitive
? ?
- - 0 0/
positive market reaction, 0 neutral market
reaction,- negative market reaction ? Uncertain
market reaction
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Timing strategy

• Questions whether a design oriented
• profiling should follow or precede the
• main competitors
• Pioneer or follower strategy

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...Basic strategies

• Avoidance
• Reduction
• Transfer
• Own problem
• Risk dialogue

Risk management strategies
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Opportunities and threats of innovation strategy
Opportunities
Threats
and
Advantages of learning curve (early gains)
Pioneer costs at R D, risks of reorganisation
costs, sunk costs
Puts down standard, product differentiation and
entry barriers
Quality problems
Provisional technology
Increased image and product attraction
Uncertainty about demand
First access to suppliers
Info-deficit of customers
Avoids cost and price increase when resources are
scarce
Delay with issue of new licences
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Opportunities and threats of innovation strategy
Strategy requirements
defining
Sustainability, potential success
Easily recognisable esthetic advantages
Evaluation of releveant alternative technologies
Strength/weakness and positive competition
analysis
Critical before implementation Marketing and
Quality guarantee