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Chapter 1

Concept of
Concepts of Strategy and Planning
by
Monica Belcourt & Mc.Bey

Introduction
Air Canada, with 40,000 employees, was facing

strategic decisions due to unstable political situation


around the world.
Problems:
Passengers,
Competition from low cost carriers
Heavy debt
Revenues

Introduction
Strategic decisions:
Acquire its competition, Canadian Airlines. And
attempted to divest some of its assets, by selling 35%
of Aero-plan to Onex Corporation, an investment firm
Create multiple brands such as Tango and Zip in an
attempt to compete with the low-cost carriers.
Try to increase its market share of international
business travel because the domestic market was
stagnant.
Downsize by laying of 10% of its employees in an
attempt to reduce its $3billon annual labor expense.
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Mintzbergs Five Ps of Strategy


Plan: an intended course of action to deal with a

situation.
Purpose: a consistent stream of actions that sometimes
are the result of a deliberate plan or emergent action
based on reactions to environment.
Ploy: a specific man-oeuvre at the tactical level with a
short time horizon.
Position: the location of an organization relative to its
competitors and other environmental factors.
Perspective: the gestalt or personality of the
organization.
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Descriptions of Strategy [Box 1.1]


Strategy: a declaration of intent. Strategy is a set

of decisions and actions designed to


achieve organizational objective.

Strategic intent: a point of view about the


competitive positions a company hopes to build over
a decade.

Strategic planning: the plans to achieve strategy.


Strategy

formulation: the entire process of


conceptualizing the mission, strategy, and developing
long term performance goals.
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Descriptions of Strategy [Box 1.1]


Strategy

implementation:
formulated strategy.

implementation

of

Objectives: the end, the goals.


Plans: the product of strategy.
Strategic plan: a written statement that outlines the

future goals of an organization.


Policies: broad guidelines to action, which establish

the parameters or rules.


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Execution of Strategy
Define vision, purpose, mission, and a clear

direction.
Convert the vision into measurable objectives.
Determine the plan to achieve the strategy.
Implement the plan in effective and efficient ways.
Measure the result against goals, revise plans in light

of actual experience, search new ideas and


opportunities.
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Strategic Plan
Some argue that future is unpredictable and a long-

term plan is difficult. So, a short-term 3-5 years


flexible plan is often used. [eg. Catastrophic events
of September 11, 2001]
Logical Incrementalism or Emergent

strategy--The process of redirecting strategy to


accommodate environmental changes.
Intended strategy is the one formulated at the

beginning of a strategy.
The realized strategy is what actually happened.
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Strategic Plan
Thus, a good strategy recognizes the complexities of

the realities To be effective Strategic management:

anticipates future problems,


provides an alignment with external
contingencies and internal competencies,
recognizes multiple stakeholders, and
is concerned with measurable performance.
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Strategic Types
Strategy can be unique to different organizations, but

they can be grouped like personality types.


Basic strategies are of two types.

Corporate strategies, and


Business strategies

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Strategic Types
Strategy

Corporate Strategy
Restructuring

Turnaround
Divestiture
Liquidation
Bankruptcies

Business Strategy

Maintenance

Growth
Incrementally
Internationally
Mergers
acquisitions
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Strategic Types
1. Corporate Strategies: Overall strategy for the company
and its businesses or interests.
These are usually focus on long-term and include major
decisions such as a decision to compete or operate
internationally or acquire another company.
Three options of corporate strategies:
a. Restructuring,
b. Growth, and
c. Maintenance.

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Strategic Types
Restructuring: When an organization is not achieving its
goal such as making profit or achieving its goals, options
are: turnaround, divestiture, liquidation and bankruptcy.
i. Turnaround
Managers try to restore a losing business to profitability
or a government agency from nonperformance to
viability.
Methods are to get rid of unprofitable products,
layoffs,
improving efficiency, or
adding a new product.

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Strategic Types
[Box 1.2]
Example (Turnaround):
McDonalds revive its success in 2003 when its profits were
down by 11%, sales by 5% from $40 billion of 2002.
Introduced Paul Newmans Own healthy salad dressings

to their light menu;


Introduced a food and nutrition website;
Attempted to tape regional food interests, girts in some
southern U.S. restaurant;
Restructured by eliminating several hundred
administrative jobs and dropped a $300 million plan to
renovate older restaurant.
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Strategic Types
ii. Divestiture : It refers to making a business (subsidiary)
financially and managerially independent or selling it
outright. sometimes, fit is the problem, not finance.
Example:
Air Canada attempted to divest its Aeroplan business and
then put its maintenance division and its low-cost
carrier Jazz on the market.
A pharmaceutical company divested in cosmetic business
though the scientists had no respect for the frivolous
cosmetic and making pretty faces.
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Strategic Types
iii. Liquidation:
Plants are closed,
employees are released and
goods are auctioned off.
Little return (salvaged) to share holders.
iv. Bankruptcy: It occurs when the company cannot pay its
creditors. Company ceases to exist and assets are divided
among creditors.

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Strategic Types
Restructuring has profound effect on HRM.
Managed turnover,
Selective layoffs,
Transfers,
Increased demand on remaining employees,
Renegotiated labor contract.

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Strategic Types
b. Growth Strategies:
Many companies make the growth strategy as its
target.
This means growth in revenue, sales, market share,
customers, orders, etc.
It has implications for HRM.
Job creation,
aggressive recruitment and selection,
rising wages,
training and development budgets.
Several ways: Incrementally, internationally, and
mergers and acquisitions.
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Strategic Types
i. Incremental Growth:
It can be done by- expanding client base, increasing
products or services, changing distribution networks, or
using technology.
Example: Proctor & Gamble
expanded the client base (introduced skin care and hair
conditioner for babies),
added a product, Pringle potato chips to its cleaning and
health care products,
changed distribution networks, added drugstores to
grocery stores, and
used technology to manage just-in-time customer
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purchasing.

Strategic Types
ii. International growth: It is expanding business to
other countries. It has a great HR implications.
iii. Mergers and acquisitions
Acquisition is acquiring a new company.
Merger is putting together two or more companies for
economy of scale.
It has HRM implications: Eliminate duplication, meld
(blend, combine) benefits and labor relations and
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create a common culture.

Strategic Types
[Box 1.4] Merger Misery
Minacs Worldwide Inc,. (call centers in Canada)

experienced growth rates of 50% over five years,


employed 4500 people in 20 countries and generated
sales of $250 million,
In 2002, purchased Phoenix Group, a U.S. based call
center to double its profits and sales.
Although two cultures seemed similar, integration
proved very difficult and time consuming.
Differences in accounting systems, Pricing methods and
efficiency levels.
The losses led to layoffs, the consolidation of offices,
debt restructuring, and severe drop in share value.
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Strategic Types
c. Maintenance strategies
It is maintaining status quo.
Satisfied with market share. No need to grow. HRM
practices remain constant. Try to get as much profit as
possible. It is harvest strategy.

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Models of Business Strategies


2. Business Strategies
Corporate strategy is used to manage and control
various units in an organization.
Business strategy answer the question of, how
should we compete?
Whereas, corporate strategy answer question,
should we be in business? What business should
we be in?
There are three models for analyzing businesses:
Boston Consulting Group model (BCG),
Miles and Snows organizational types and
Porters model.
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Boston Consulting Group model


This is a portfolio matrix for analyzing strategies of
different units of an organization (portfolio).
Indicators such as growth rate, market share, long-term
industry attractiveness and competitive strategy or stage
of product/market evolution.
It requires some relative analysis on both indicators.
Growth rate to be considered high, should have, say,
double the average industry growth rate.
Market share also has to be assessed in relation to
other companies.
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Fig 1.1: BCG growth in Share Business Position


Relative Market Share
High
(above 1.0)

Industry
Growth
Rate

Low
(below 1.0)

High
Stars

Question
Marks

Low
Cash
Cows

Dogs

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High Growth Rate


Stars (HH)
Offer excellent profit and growth opportunities.
Parent company will pour cash to expand this business.
Stars can generate enough cash to expand other
businesses.
Question marks (LH)
Company does not seen to capitalize on the
opportunity.
Does the firm have competitive strength or does the
parent company have resources to make it competitive?
Divest or invest to expand.
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Low Growth Rate


Dogs (LL)
No potential, and no cash generation to defend itself.
Profits are marginal in an industry where competition is
tough.
The strategy is to close by harvesting, divesting or
liquidating.
Cash cows (HL)
It may be profitable because its products are less
expensive or its gives a unique service.
It generates more cash than can be reinvested to grow.
Keep it healthy to subsidize the stars or to deal with
problem units.
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Miles and Snows Organizational Types


[four types]
i.

Defender: It competes in a relatively stable and


predictable environment and pursues a low-cost
operations, focusing on efficiency through
standardized jobs, formalization and centralizations.

ii. Prospector
It operates in a dynamic environment.
Innovation and adaptation are critical for success.
Example. Telecom needs heavy investment in R &
D for innovation and adaptation and decentralized
structures for rapid and intelligent responses to
environment.
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Miles and Snows Organizational Types


[four types]
iii. Analyzer
It is a combination of defender and prospector,
attempting to achieve efficiency with an interest in new
markets and products.
It scans competitors actions and promptly develops
better ways to get products to market.
iv. Reactor
It is an imperfect and ineffective type and has no
apparent strategy and lacks consistent response to
changing conditions.
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Porters Model: Five Competitive Strategies


What particular goods and services, what features to
differentiate?
Cost, quality, optional features, durability and
reliability.
Market dimensions: size, diversity, buying
patterns and geographical regions.
i. Low-cost provider strategy
Provide a product or service at a price lower than
that of a competitor appealing to a broad range of
customers.
It continuously tries to reduce cost. Fast food
company.
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Porters Model: Five Competitive Strategies


ii. Broad Differentiation Strategy
It tries to differentiate its products from
competitors products that will appeal to a broad
range of customers.
It tries to search for features that will make its
product or service better.
iii. Best-cost Provider Strategy
The goal is to give customers more value by
emphasizing a low cost product or service and
upscale differentiation.
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Porters Model: Five Competitive Strategies


iv. Focused or market niche (specialized, limited)
strategy based on lower cost
Offering a low-cost product to a selected group of
customers.
v. Focused or market niche (specialized, limited)
strategy based on differentiation
It offers a niche product or service to the tastes and
requirement of a very narrow market segment.
Under Porters scheme, business strategy concerns with
product and market scope. (Selling Pork/Organic vegetable
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in Dhaka to a narrow market segment).