Chapter One:  Strategic Management

Agenda:

 To Do:

–   Need by FRIDAY!

 

QUESTION: 

  Why do some organizations succeed and others fail?

This course is about strategic management and the advantages that accrue to organizations that think strategically.

 

  QUESTION:   

  What (3) factors does company success depend on?

 

–  Large multibusiness organizations

–  Small one-person enterprises

–  Publicly held

–  Profit-seeking corporations

–  Not-for-profit organizations.

 

QUESTION:  What is strategy?

Strategy Definition ONE:        [1+1 = 2]

 

 Glueck defines strategy as:

–  "a unified, comprehensive, and integrated plan designed to ensure that the basic objectives of the enterprise are achieved."

 

QUESTION:

How does Shell's scenario-based planning system help the company to achieve a competitive advantage?

 

   Shell's scenario-based planning system

 

Tool for getting managers to think strategically about the interrelationship of environmental changes and the company's performance.

 Helps identify kinds of strategies that they should be pursuing.

 

 Helped the company identify a number of different ways of lowering costs 

–  Survival when and if prices of their oil dropped to, e.g., $15 a barrel

 

When this "hypothetical" scenario actually came to pass, Shell found itself in a much better position than its competitors.

Scenario based planning is part of thinking rationally...

 Of believing that we can make decisions based on facts that will optimize firms’ outcomes.

 If you wait to act rationally, you’ll be left in your competitors’ dust.

Allow strategies to “EMERGE” and evolve over time.

 

With this in mind, Mintzberg has defined strategy as: 

A pattern in a stream of decisions or actions. The pattern is a product of whatever aspects of an organization's intended (planned) strategy are actually realized and of its emergent (unplanned) strategy.

QUESTION:
How does a firm decide....

  Firm needs to determine worth, and fit of emergent strategies. 

This involves analyzing the organization's external environment and internal operations.

An organization's capability to produce emergent strategies is a function of the kind of culture fostered by its structure and control systems.

  Bottom line:  It should consider BOTH sources of strategy.

 

Components of strategy include:

 Purpose:  Identify strategies that align, fit, or match a company's resources and capabilities to the demands of the environment.

QUESTION: 
What’s wrong with the “fit” model?

1.  To gain competitive advantage with       the technique it must be UNIQUE       for individual firms.

When all “players” have this capability, we say that the technique is “in equilibrium.”

What’s wrong with fit model, continued...

2.  In the real world, the only constant is change. Even the best-laid plans       can fall apart if unforeseen contingencies occur.

    This fact prompted Royal Dutch/Shell to pioneer the scenario approach to planning discussed in Strategy in Action 1.1.

3.  Treat planning as an exclusively corporate-level function.

Ivory tower approach can result in strategic plans that are formulated in a vacuum by planning executives who have little understanding or appreciation of operating realities, & will not be involved in implementation. 

4.  Prompts management to focus too much upon degree of fit between the existing resources and current environmental opportunities—and not enough on building new resources and capabilities to create and exploit future opportunities.

QUESTION:
Are all managers good strategists?

No, not all.

 Why?  

          Cognitive biases, Groupthink

Cognitive Bias, Groupthink

We tend to fall back on certain rules of thumb, or heuristics, when making decisions, and sometimes they lead to severe and systematic errors in the decision-making process.

Cognitive Bias, continued...

Prior hypothesis bias

Decision makers have strong prior beliefs about the relationship between two variables, and make decisions on the basis of these beliefs, even when presented with evidence that their beliefs are wrong.

Cognitive Bias, continued...

Escalating commitment

Occurs when, having already committed significant resources to a project, decision makers commit even more resources if they receive feedback that the project is failing.

Reasoning by analogy involves use of simple analogies to make sense out of complex problems -- oversimplify.

Cognitive Bias, continued...

Representativeness refers to the tendency on the part of many decision makers to generalize from a small sample or even a single vivid anecdote.

The illusion of control is the tendency on the part of decision makers to overestimate their ability to control events.

Cognitive Bias, continued...

Groupthink occurs when a group of decision makers decides on a course of action without questioning underlying assumptions. Typically, a group coalesces around commitment to a person or policy.

QUESTION:  Was Howard Johnson a logical acquisition for Imperial?

No, proved to be a costly mistake.

Why did the company make the acquisition?

Seems to be a classic case of groupthink. CEO decided that the company was a good buy, yes men and women surrounding him failed to point out serious flaws in the plan.

QUESTION:  What tools can we use to combat cognitive bias, groupthink:

Two techniques that have been proposed to guard against cognitive bias, groupthink:  devil's advocacy and dialectic inquiry.

 

Tools to combat cognitive bias, groupthink:  Devil’s Advocacy

 Devil's advocacy involves the generation of a plan and a critical analysis of it.

A member of the group acts as the devil's advocate, bringing out all the reasons why the proposal should not be adopted.

Tools to combat cognitive bias, groupthink:  Dialectic inquiry

Dialectic inquiry involves generation of a plan and a counterplan reflecting plausible but conflicting courses of action.

A debate between advocates of the plan and those of the counterplan should be considered by senior strategic managers.  After debate, ideas from competing plans are synthesized.

Skills/ Attributes of a Good Strategic Leader