Summary MNG3701_Study Notes.

MNG3701_Study Notes. Strategic Management. Managers should realize they have an influence they can influence the competitive landscape. They need to start with a point of view of how the world can be, not how to improve what is available but rather how to alter it drastically. There are 4 transformations that influenced and continue to influence the business models and work of strategists: 1. Expansion of available strategic space – Companies can decide and change their business portfolios. The forces of change have provided business with new strategies and new opportunities. 2. Business will be global – All adds to the complexity of strategic management and planning. 3. Speed will be critical – A critical element due to the nature of competitive changes. 4. Innovation as a new source of competitive advantage – usually tied to product and process innovation but has shifted to innovation in business models. Managers operate in changing environments, taking resources from the environment and transforming these resources into final products or services. The concept of systems theory describes the organisation is an open system that operates in a specific environment, the whole is greater than the sum of its parts. Management consists of four functions: planning, organising, leading and controlling. Different managers work at different levels and meet different requirements. Management levels consist of top management, middle management and lower/firstline management. Top management is represented by the CEO and the board of directors: together, they are responsible for the whole organisation. The middle management level represents the functional managers, such as the HR manager, the marketing manager and the financial manager. They are only responsible for the specific department or functional area under them. The lower/first-line managers are the supervisors who have more technical skills and who are more actively involved in the day-to-day business operation. 2.2 DEFINING STRATEGIC MANAGEMENT (1.2.1) Management involves planning, leading, organizing and controlling. Strategy is an effort or deliberate action that an organisation implements to outperform its rivals. It is an organisations theory about how to gain competitive advantage. Strategic management - the process whereby all the organisational functions and resources are integrated and coordinated to implement formulated strategies which are aligned with the environment, in order to achieve the long-term objectives of the organisation and therefore gain a competitive advantage through adding value for the stakeholders. Competitive advantage is the edge that an organisation has over others. To achieve this, an organisation needs to meet the needs of stakeholders, i.e. adding value. The leap-frog effect is when competitors emulate your strategy and retaliate in a more competitive way. H.Crassas – 2014 – MNG3701 Page 1 The three main skills for sound management : 1. conceptual skills - refer to the mental ability to view the organisation as a whole 2. interpersonal skills - refer to the ability to work with people 3. technical skills - refer to the ability to use the knowledge or techniques of a specific discipline to attain objectives Corporate Strategy Business Strategy Functional Strategy 2.2.1 STRATEGY: DIFFERENT VIEWPOINTS (1.2.2) Montgomery states that strategy is to just a plan that positions a company in its external landscape but rather strategy guides the development of the company’s identity over time, i.e. a strategy as a set solution, with the missing element, namely strategy as a dynamic process. Traditional View Emerging View View Strategy as fit with resource Strategy as stretch and leverage Industry Space Strategy as positioning in existing industry space Strategy as creating new industry space Responsibility Strategy as top management activity Strategy as total and continuous organisational process Exercise Strategy as an analytical exercise Strategy as an analytical and organisational exercise Direction Strategy as extrapolating from the past. Strategy as creating the future. 2.2.2 THE PEOPLE INVOLVED IN STRATEGIC MANAGEMENT (1.2.3; 1.2.4) Environmental analysis is the responsibility of every manager. A strategy formulation is mainly the responsibility of top management. Strategic implementation can only be achieved with communication from all the parties involved Employees are the catalysts and drivers of strategy implementation. The 3 stages of the strategic management process are: 1. Environmental analysis – responsibility of every manager at every level but driven by top management but by means of inputs from all levels. Functional and supervisory managers work as specialists so their environmental scanning is important. 2. Strategy formulation - top management responsibility to formulate strategy from results of environmental analysis with input from all levels management. 3. Strategy implementation – most challenging stage when formulated strategy needs to come to life with the buy-in from employees and other stakeholders. Strategic planning champions (SPC) refers to strategy practitioners who “introduce, promote and guide the strategies planning process in an organisation”. An SPC is thus a skillful strategic thinker and analytical planner and should also be:  Social craftsperson – The ability to bring different expectations from different the different groups together.  Artful interpreter – Who has enough understanding of the local norms, routines and positions of other role players to be able to adjust the strategic planning process to suit local rules.  Known stranger – Who has the ability to maintain a balance between closeness and distance to other players in the strategic planning process. Strategic management involves both qualitative and quantitative decisions:  Quantitative decisions are built on proper strategic analysis and choice. Strategic options and plans are developed after a thorough environmental analysis.  Qualitative decisions are based on a ‘gut feeling’ or intuition. 2.2.3 LEVELS OF STRATEGY Strategic decisions are made at three levels. This module focuses on business level strategy, which is also referred to as competitive strategy. Carpenter & Sanders (2009) state that: H.Crassas – 2014 – MNG3701 Page 2  Corporate strategy - guides a firm’s entry and exit from different businesses, determines how a parent company adds value to and manages its portfolio of businesses, and creates value through diversification.  Business-level strategy - more concerned about developing and sustaining a competitive advantage for the goods and services that the company produces. It is the strategy used to compete against other companies in a particular industry.  Functional strategy - decisions involve the development and coordination of resources through which business unit level strategies can be executed efficiently and effectively. 3. CONTEMPORARY APPLICATIONS OF STRATEGIC MANAGEMENT (1.3.5) Strategic management not only applies to profit-oriented organisations, but is also relevant to the survival of non-profit organisations and NGOs. These include governments, schools, sports clubs and churches. As profits are not their main goal, they tend to focus on expenses and income. Many not-for-profit organisations have more stakeholders than big corporations. Argument is stronger to implement strategic management as they have more time, do not operate in a cut-throat and fast moving environment. The trend of doing business globally has increased over the past few years, largely due to globalization and integrated economies. This can be seen as an opportunity and a threat but the basics of strategic management remain the same, but with a few more options available to managers. Strategic issues and concepts leading us into the future (1.6) Ethics and strategy Companies cannot ignore the link between ethics and strategy after Enron and WorldCom scandals. The strategy process represents an ‘appropriate locus’ for ethical reflection within the organisation. Strategy formulations representing ethical reflection on a corporate level Stakeholder management Stakeholders in a firm are individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and who are therefore its potential beneficiaries or risk bearers. Stakeholders play an important part in the creation of organisational wealth. The challenge of strategic management is to create a balance between the interests of diverse stakeholders who are voluntary or involuntary involved in the operation of the business and usually relationships rather than transactions responsible for organisational wealth.  Voluntary stakeholders - contribute directly to the operations of the organisation, include investors, employees, customers, market partners, etc.  Involuntary stakeholders – Thos affected by things such as pollution and congestions and the focus is on reducing harm and avoiding or creating benefits. Innovation economy and knowledge management There has been a clear shift from industrial economy to innovation economy as rapid sharing of knowledge forces those involved to reinvent and constantly adapt. Companies that will be successful are those that take information and transform it into value-creating knowledge and use it to innovate, i.e. creative thinking and visionary companies succeed, innovate or be damned. Innovation – New products, business processes and organic changes that create wealth or social welfare. Knowledge management Knowledge management – in its broadest sense it is seen as a generic process through which organisations generate value from knowledge. There is a difference between knowledge and information. Information is data organized into meaningful patterns and this is transformed into knowledge when read, understood, interpreted and applied to a function.  Tacit knowledge – knowledge that cannot be explained properly. It can only be passed from one person to the next by a long process of apprenticeship.  Explicit knowledge – easy to communicate and easily transferred, resides in formulae, textbooks or technical documents. Knowledge can lead to competitive advantage but organisations are already flooded with more knowledge that they can handle. Knowledge management solves this by designing processes that oversee the creation, distribution and utilization of knowledge to meet organisational goals. H.Crassas – 2014 – MNG3701 Page 3 Innovation management Innovation management is a field of discipline that deals directly with issues relating to how the innovation process can be managed efficiently. It is essential to create efficient use of knowledge to create better, faster, more cost-effective innovations to stay competitive. Knowledge management and innovation management should not be treated separate. Knowledge innovation Knowledge innovation is defined as the creation, evolution, exchange and application of new ideas into marketable goods and services, leading to the success of an enterprise, the vitality of a nation’s economy and the advancement of society. Knowledge innovation recognizes 2 key elements: 1. Knowledge, not finance or technology, as one of the core components of innovation and 2. Actions associated with managing the flow and use of knowledge in an innovation process The real benefit for companies lies in the ability to utilize knowledge for innovation Multiculturalism of South African organisations and knowledge management. Knowledge depends on experience and can be regarded as a process that is personal and subjective. Culture plays an essential role in knowledge sharing and challenge is to utilize the richness of ethnic groups in order to enhance productivity and global competitiveness. Advantages of multiculturalism are the diversity of ideas, influences and cultures which can lead to new and innovative thinking. The knowledge manager acts as a change agent and facilitator for new ideas. Distrust and miscommunication are causes for the breakdown of multicultural knowledge sharing. Trust as an integral part of the knowledge sharing process. The manager showing sensitivity to towards the different languages may encourage understanding. Multiculturalism in the corporate knowledge environment is a reality that needs to be utilized to achieve innovation. A culture of trust, understanding, support and openness needs to be actively encouraged. Corporate entrepreneurship Intangibles such as knowledge, innovation and entrepreneurial leadership are assets that help companies gain a competitive advantage. In turbulent rich environments the combination of technological opportunities and demand for new products creates technology push and market pull forces increasing entrepreneurial behavior. Corporate entrepreneurship – is the term used to describe the process in which an individual, or group in alliance with an existing organisation creates a new organisation or instigates renewal or innovation within the organisation. The 3 dimensions of an entrepreneurial orientation in companies are: 1. Innovativeness – the ability to generate ideas that will result in the production of new products, services and technologies. 2. Risk taking – refers to the willingness to make resources available to pursue opportunities that may fail but take precautions to minimize uncertainties. Risks are calculated and manageable. 3. Proactiveness - reflects a managerial orientation of initiative, competitive aggressiveness and boldness in pursuing opportunities. Change Management Change with the times or fail. A primary role of strategists is to deal with change. The common success factors for managing change, called an Organisational Change Framework, include; 1. Leadership 2. Project management 3. Processes 4. People 5. Learning H.Crassas – 2014 – MNG3701 Page 4 Strategic leadership Leadership’s task’s includes the full circle of vision, mission and profile, to strategy, to action, and to results. Hussey (1998) states that technological change has at least two dimensions: The first is the change implemented is for marketing reasons. The second is change in the organisation’s processes, production methods and other technology, all of which alter the way a product is manufactured Handy states that organisations no longer have to own all the resources needed to get the work done. Partnerships, outsourcing, flexible labour, work-around-the-clock and interim managers are different ways of creating a competitive advantage and, ultimately, surviving in a hostile environment H.Crassas – 2014 – MNG3701 Page 5 Strategy formulation Strategy implementation Strategy evaluation and control The Strategic Planning Process and Components TOPIC 1 – STUDY UNIT 1.2 – THE STRATEGIC MANAGEMENT PROCESS AND STRATEGIC PLANNING 2. THE STRATEGIC MANAGEMENT PROCESS AND STRATEGIC PLANNING (1.3)  Organisational direction: developed on the basis of ethical behaviour and corporate governance. Direction is provided by the vision and the mission statement of the organisation.  Environmental analysis: evaluating and analyzing the external environment for opportunities and threats, and the internal environment for strengths and weaknesses (SWOT analysis)  Strategy formulation: long-term goals are developed- derived from the mission statement and a generic strategy is chosen and grand strategies developed. H.Crassas – 2014 – MNG3701 Page 6 The strategic management process is a continuous activity that focuses on the long-term sustainability of the organisation. It is a sequential set of analyses and choices that enables organisations to achieve above-average returns and add value to its stakeholders. Strategic management consists of three distinct phases/stages: 1. Strategy formulation (thinking stage) 2. Strategy implementation (action stage) 3. Strategy evaluation and control (evaluation stage) 1. Strategy formulation – this stage is largely the responsibility of top management. It is the first stage in the strategic management process and focuses on the organisations strategic direction. This is also called a thinking stage. It involves the formulation or review of a company’s vision, mission and long-term goals It also evaluates the environments in which the organisation operates to identify the strengths, weaknesses, opportunities and threat. The components of the strategic planning process are  Strategic direction  Long-term objectives  Environmental analysis  Generic strategies  Grand strategies 2. Strategy implementation - once an organisation has decided on the destination and the strategy it will take, it needs to move towards that specific destination. This is where the strategy implementation process comes into play. This is also called an action stage: Strategy implementation is the action stage of the strategic management process and requires input and participation from everyone in the organisation. There are different drivers and instruments that can be used to implement the chosen strategy to eventually reach the desired destination/outcome.