Strategy Fundamentals

Week 1: Strategy Fundamentals
and the Global Manager
MPM703 T1 2022
1
Outline
What is strategy?
What is strategy in a global business environment?
The business environment
What is globalisation?
Managing differences: A major task of global managers
Theories and Strategic Management
2
Unit Learning Outcomes (ULOs)
Upon completion of this unit, successful students can:
ULO 1: Analyse systematically the internal an external business environments of a firm to inform
managerial and business decisions
ULO2: Apply appropriate theories, concepts, and analytical tools in strategy
development, implementation and evaluation across diverse business contexts
ULO3: Recommend relevant and sustainable strategic business decisions
in addressing various business issues
ULO4: Contribute to building a cohesive and productive team with effective business skills
GLO1: Discipline-specific
knowledge and capabilities (
in
Strategic Management
)
Deakin’s Graduate Learning
Outcomes GLOs
GLO2: Communication
GLO5: Problem solving
ULO5: Communicate effectively, in oral or written form, the results of
managerial analysis of various business issues and relevant recommendations
3
GLO7: Team work
What is Strategy?
Origin-Greek word (strategos)-art of the general
Sun Tzu, Chinese military strategist in 500 B.C.
Modern-day application to business and competition dates to the 1960s
Plan – strategy is “explicit, rigorous formal planning
Action – a set of flexible, goal-oriented actions (pattern of actions)
Strategy as theory-how to compete successfully
Firms have both intended and emergent strategies
One firm’s strategies may not work in all situations
Past success does not guarantee future success
Incremental vs radical change
4
Five Ps of Strategy
Strategy as a:
1. Plan – consciously intended course of action to address a situation
2. Ploy – a maneuver or tactic to outdo a competitor or opponent
3. Pattern – a stream of coherent actions to achieve a goal
4. Position – a strategic identity of a firm in a given environment (e.g. market
leader (Microsoft), innovator (Apple), imitator, follower, premium airline,
etc.
5. Perspective – how the firm views itself (not too far away from position)
While Singapore Airlines’ strategic position as a premium, customer-driven firm, its
strategic perspective is that of an efficiency-driven airline whose value chain is tightly
monitored, coordinated, and improved (innovation) to deliver premium value to
passengers
5
Strategy in business and management
A set of deliberate patterns of actions and directions skilfully crafted to enable a
firm deliver better value to (a) target markets better than the competition with
the end goal of sustaining its competitive position.
Strategies apply to both for-profit (businesses) and non-profit (government
agency, community organisation, social club)
For-profit organisations – satisfaction of customers amidst competition
Non-profit – satisfaction of target clientele (e.g. citizens, community, club members)
Competition? Government agencies, community organisations, clubs, etc. compete for legitimacy and
relevance
6
Current
State
Desired
State

The “Strategy Tripod”
Three Leading Perspectives on Strategy
7
INDUSTRY FORCES
INSTITUTIONAL
FORCES

ORGANISATIONAL
CAPABILITIES

STRATEGIES
OF FIRMS
PERFORMANCE
OUTCOMES
Source: Peng, M., Sun, S., and Chen, H. 2009, The institution-based view as a third leg for a strategy
tripod, Academy of Management Perspectives, August, pp. 63-81

What is strategy in a global business
environment?
Plans, actions and strategic responses of firms to the challenges
posed by the global external business environment
Strategies employed by both domestic and international or global
firms when confronted with various environmental threats and
opportunities
Strategic responses of firms in an era of globalisation
8
Layers of the business environment
9
The PESTEL framework
The PESTEL framework categorises environmental factors into six key types:

Political Economic
Social Technological
Ecological Legal

PESTEL helps to provide a list of potentially important issues influencing global strategy.
It is important to assess the impact of each factor.
10
The PESTEL framework
Political factors: The role of the state e.g. as an owner, customer or
supplier of businesses. Other political factors include government
policies, taxation changes, foreign trade regulations, political risk in
foreign markets, changes in trade blocks (e.g. expansion of EU; ASEAN
integration into common market).
Economic factors: The role of macro-economic factors. This includes
business cycles, interest rates, personal disposable income, exchange
rates, unemployment rates, differential growth rates around the
world.
11
The PESTEL framework
Social factors: Including changing cultures and demographics.
Examples are the ageing population in Western societies, income
distribution, lifestyle changes, consumerism, changes in culture and
fashion.
Technological factors: New discoveries and technology
developments. Examples include developments on the internet,
nano-technology or the rise of new composite materials
12
The PESTEL framework
Ecological factors: This refers to ‘green’ environmental issues, such as
pollution waste and climate change. Examples are environmental
protection regulations, energy problems, global warming, waste
disposal and re-cycling.
Legal factors: Legislative and regulatory constraints or changes.
Examples are IPR, competition law, health and safety law,
employment law, liberalisation of trade law.
13
Using the PESTEL framework
Apply selectively – identify specific factors which impact on the
industry, market and organisation in question.
Identify factors which are important currently but also consider
which will become
more important in the next few years.
Use data to support the points and analyse trends using up-to-date
information.
Identify opportunities and threats – the main point of the exercise!
14
External Factor Evaluation (EFE) Matrix
Steps to a structured PESTEL analysis
1. List key external factors (opportunities and threats)
2. Weight from 0 to 1 (i.e. strategic importance)
3. Rate effectiveness of firm’s current global strategies in addressing the external factors (1- poor, 2-
average, 3-above average and 4-superior)
4. Multiply weight * rating
5. Sum weighted scores
15
EFE Matrix for a Local Ten-Theater
Cinema Complex
Total weighted score:
1.00 to 4.00
1.00: poor response
2.00: average response
3.00: above average response
4.00 – very effective response to
environmental factors
Example; 2.58 – average
response to Os and Ts
16
PESTEL Framework – Use of EFE Matrix
Why develop and use an EFE matrix?
identify and focus on key drivers for change
focus on strategic issues
synthesis of potentially long and complex lists of PESTEL
factors
effective presentation of critical information
17
What is Globalisation?
A socio-political, economic and technological process of interaction and
integration of people, firms and governments across the globe
The rise of multinational firms – Nestle, IBM, Microsoft, eBay, Google, Alibaba
Managers of firms need to develop capacity to deal with opportunities and
threats arising from a global economy
18
The Central Challenge of Global
Strategy:
Managing Differences
19
Managing Differences Across Borders
Managing large differences that arise at borders is central to any global
strategy of firms
Firms growing their businesses beyond borders must choose one ore more
of these three basic strategic options in order to respond to the challenges
of a global marketplace in particular and globalization in general:
Adaptation Aggregation Arbitrage
20
The Triple A Framework: Adaptation
adaptation to local markets
Changing, tailoring or customising one or more elements of a company’s
product offerings to suit local requirements, preferences or conditions
a widely used global strategy to achieve local relevance while exploiting
economies of scale
Changing product features, pricing, promotion, and channels of
distribution to meet local demands/preferences
Changing businesses process/operations to adhere to local standards,
practices, rules, guidelines
21
The Triple A Framework: Adaptation
Adaptation mechanisms:
1. Variation: making changes in products and services, policies, positioning,
and expectations for success (e.g. Whirlpool offering smaller sizes of
washing machines/dryers in Europe than in US)
2. Focus: market product/lines that require/s less adaptation; focus on one
target market or segment or geographic area
3. Design: changes in order to reduce cost; flexibility in manufacturing to
overcome supply differences
4. Innovation: to offer something new to new overseas markets
22
The Triple A Framework: Aggregation
Creating economies of scale or scope to deal with local market differences
Exploit similarities among geographies (e.g. Southeast Asia, Latin America,
South Asia, etc.) and offer ‘standardized’ products for each geographic
grouping
Examples include: use of global corporate brand, centralized global
production systems (instead of having separate production systems in each
country)
23
The Triple A Framework: Arbitrage
Exploiting the local market differences to the firm’s advantage
Exploiting differences between national or regional markets, e.g. locating
separate parts of the supply chain in different places
Examples: locating production in countries with cheaper labour (e.g.
outsourcing), less industry restrictions, etc.
Exploiting the legal, institutional, and political differences between regions
or countries (e.g. lower taxes, government incentives
Exploiting local market imperfections (e.g. lack of government regulation,
under developed local industry) to become pioneers; first-mover
advantage
24
The Triple A Framework
Focus on one or two A’s
Fit between the chosen A’s and the firm’s global ambition,
capabilities and resources
Firms need to be ambidextrous in employing multiple
mechanisms to manage differences between and among
markets
25
Summary
Global strategy
Fundamental questions in strategy
The strategy tripod
The business environment
Globalisation
Managing differences in global or international operations
26
Unit Learning Outcomes (ULOs)
Upon completion of this unit, successful students can:
ULO 1: Analyse systematically the internal an external business environments of a firm to inform
managerial and business decisions
ULO2: Apply appropriate theories, concepts, and analytical tools in strategy
development, implementation and evaluation across diverse business contexts
ULO3: Recommend relevant and sustainable strategic business decisions
in addressing various business issues
ULO4: Contribute to building a cohesive and productive team with effective business skills
GLO1: Discipline-specific
knowledge and capabilities
(
in Strategic Management)
Deakin’s Graduate Learning
Outcomes GLOs
GLO2: Communication
GLO4: Critical Thinking
ULO5: Communicate effectively, in oral or written form, the results of GLO5: Problem solving
managerial analysis of various business issues and relevant recommendations
27
Looking ahead
28
Business
Strategies
of a firm
Resource-based
considerations
(resources & capabilities of a
firm)
Industry-based considerations
(industry/market
competition)
Institutional considerations
(formal and informal
institutions)
Competitive
Advantage &
Performance of a
firm