strategic management: including application of maqasid al-shariah as strategic option

MISSIONTo Score Distinction For MBA

OBJECTIVEUnderstand & Apply

By Prof. SHAYA’A [email protected]

This lecture was given to MBA Students. University of Keele ,Staffordshire,(UK); INSANIAH & KUIS (MALAYSIA)

and Senior Managers of Caprice Gold Group, Turkey

Lecture STRATEGIC MANAGEMENT

[Including Application of Maqasid Al Shariah in Strategic Management]

1429H [1st Lecture] -1435H [Revised] / 2008M [1st Lecture] -2014M [Revised]

Proposed Time For The Lecture [1000 - 1800][13th March 1999]

Strategic Management

• 1000-1100 - LECTURE• 1100-1200 - LECTURE• 1200-1300 - DISCUSSION• 1300-1400 - LUNCH• 1400-1500 - LECTURE• 1500-1600 - LECTURE• 1600-1615 - TEA BREAK• 1600-1700 - DISCUSION• 1700-1800 - DISCUSSION

STRUCTURE OF LECTURE

• COMPETITIVE STRETEGY• Three Generic Strategies

• DEVELOPMENT STRATEGY• Alternative Directions

For Strategic Development

• PORTPOLIO STRATEGY• Boston Consulting Group

[BCG] Growth Share Matrix

• McKinsey/Attractiveness Strength Matrix

• BLUE OCEAN STRATEGY• MAQASID AL-SHARIAH

STRATEGY

• STRATEGIC MANAGEMENT • Definition and Process

• FORMULATION OF STRATEGY

• Situation Analysis• Strategic Option

• SITUATION ANALYSIS• General Environment• Competitive

Environment• Organization• Internal Environment• SWOT Analysis

: 1000 - 1300 [3hrs] : 1400-1800 [4 hrs]Part 1. SITUATION ANALYSIS Part 2. STRATEGIC OPTION

STRATEGIC MANAGEMENT


SUM

Slide 2

S M

Definitionof

STRATEGY• As Plan = deals with how leaders try to establish direction

for the company, to set them on predetermine courses of action

• As Pattern = focuses on action, reminding us that the concept is an empty one if it does not take behavior into account

• As Position = encourages us to look at organizations in their competitive environments

• As Perspective = raises intriguing questions about intention and behavior in a collective context

• A Strategy is a pattern or plan that integrate an organization’s major goals, policies, and action sequences into a cohesive whole.

James Brian Quinn,[1988], The Strategy Process, Prentice Hall

Definition of

Management

• “A set of activities [including planning and decision making, organizing, leading, and controlling] directed at an organization’s resources, [human, finical, physical and information] within the aim of achieving organizational goals in an efficient and effective manner”

• efficient = using resources wisely and in a cost-effective way.• effective = making the right decisions and successfully

implementing them.

• “Knowing exactly what you want [people] to do, and then seeing that they do it in the best and cheapest way”. - Frederick Taylor

• “Application of knowledge to realities in order to attain desired results”

• K. O’Donnell, Weitrich 1986, Essential of Management, McGraw Hill

Ricky W Griffin [1996] Management, Houghton Mifflin

Definitionof


• ALL THAT IS NECESSARY TO POSITION THE COMPANY A WAY THAT WILL ASSURE ITS LONG-TERM SURVIVAL IN A COMPETATIVE ENVIRONMENT

FORMULATION OF STRATEGY

• In essence, the FORMULATION OF STRATEGY is concerned with MATCHING the CAPABILITIES of the organization with its ENVIRONMENT

MATCHING

CAPABILITIES

ENVIRONMENT

MATCHING = SITUATION ANALYSIS [The Firm and its Environment]

• GENERAL ENVIRONMENT• Economics, Technological,

Legal, Political, Social & Cultural

• COMPETITIVE ENVIRONMENT• Product, Supplier, Buyer,

Rivalry, Labor• ORGANIZATION

• Firm’s Position - Lifecycle Model, Strategic Group analysis, Market Share Analysis

• INTERNAL ENVIRONMENT• Recourses and Capabilities:

The Value Chain• SWOT ANALYSIS

• Determine Firm Strategic position, Capability of Present Strategy to changes

• COMPETITIVE STRETEGY• Three Generic Strategies

• DEVELOPMENT STRATEGY• Alternative Directions For

Strategic Development• PORTPOLIO STRATEGY

• Boston Consulting Group [BCG] Growth Share Matrix

• McKinsey/Attractiveness Strength Matrix

• BLUE OCEAN STRATEGY

• MAQASID AL SHARIAH STRATEGY

SITUATION ANALYSIS STRATEGIC OPTIONS

3 5

STRATEGY FORMULATION

SITUATION ANALYSIS• GENERAL ENVIRONMENT

• Economics, Technological, Legal, Political, Social & Cultural

• COMPETITIVE ENVIRONMENT• Product, Supplier,Buyer,Rivalry,Labor

• ORGANIZATION • Firm’s Position - Lifecycle Model, Strategic Group

analysis, Market Share Analysis• INTERNAL ENVIRONMENT

• Recourses and Capabilities: The Value Chain• SWOT ANALYSIS

• Determine Firm Strategic position, Capability of Present Strategy to changes

1. General Environment[SITUATION ANALYSIA]

• Economics factors :

• Technological factors :

• Legal factors :

• Political factors :

• Social & Cultural factors :

2. Competitive Environment[SITUATION ANALYSIA]

• Product, Supplier,Buyer,Rivalry,Labor [ PROS BURILA]

Potential Entrants

Suppliers Buyers

Substitutes

IndustryCompetitors

Rivalry AmongExisting Firms

Treats of new entrants

Treats of substitute products or services

Bargaining Power

Bargaining Power

Porter 1980The Five Forces of Industry Competition

3. Organization [SITUATION ANALYSIS]

• Firm’s Position :

• Lifecycle Model:

• Strategic Group Analysis:

• Market Share Analysis

3.1 Firm’s Position[SITUATION ANALYSIS: Organization]

• Comparing environmental influences have on the firm and its competitors. Assessment of the overall impact the changes are likely to have on companies

Company Healthy living Prices Design ThriftinessOverall

PROTONGood Fair Fair Excellent Good

KIA Excellent Good Good ExcellentExcellent

MZADA Excellent Excellent Good ExcellentExcellent

LADA Fair Good Fair FairFair

3.2 Life-Cycle Model [SITUATION ANALYSIS: Organization]

• INTRODUCTION GROWTH MATURITY DECLINE

• Growth Rate Slow Accelerating LevelingDeclining

• Sales Low Rising Peak Declining• Unit Cost High Declining Low Low• Product LineShort Growing Diversified Shrinking• Profits Negative Increasing High Declining• Competitors Few increasing more but stable Declining• Pricing Cost PlusPenetration Competitive Cut

Indu

s try

Sal

es

Proton Iswara

ProtonWira

Proton Perdana V6Proton Satria GTi

3.3 Strategic Group Analysis

[SITUATION ANALYSIS : Organization ]

•

P

rodu

ct R

ange

C

over

ed

Extend of Geographic coverage [in terms of sales

FORDCRYSLERFIATRENAULT

ROVER PEUGEOT

MERCEDES VOLVO BMW

AUDI SAAB

VW NISSANHONDA

MAZDA TOYOTA SEAT SUZUKI DAIHATSUSKODALADA

Local Multinational

Nar

row

Bro

ad

PROTON

3.4 Market Share Analysis

[SITUATION ANALYSIS : Organization ]

•

0%

MAR

KET

SH

ARE

S

100

% Micro Mini Medium Big Luxury 4x4 Sports

MARKET SEGMENTS

Proton

Perodua

MercedesBMW

AudiVolvo

PeroduaProton-Lotus

Proton Market Shares in Malaysia 1998

4. Internal Environment [SITUATION ANALYSIS]

• Recourses and Capabilities: The Value Chain, Porter 1985Firm Structure

Human Resource ManagementTechnology DevelopmentProcurement

Inbound Operation Outbound Marketing ServicesLogistics Logistics and sales

Marg

in

Margin

PRIMARY ACTIVITIES

SUPP

OR

T A

CTI

VIT

IES

5. SWOT Analysis [SITUATION ANALYSIS]

• STRENGTH & WEAKNESSES OF THE ORGANIZATION AGAINST THE OPPORTUNITIES AND TREATS THROWN OUT BY THE ANALYSIS OF EXTERNAL ENVIRONMENT

STRATEGIC OPTION

1.COMPETATIVE STRATEGIES

2.DEVELOPMENT STRATEGIES

3.PORTPOLIO STRATEGIES

4.BLUE OCEAN STRATEGY

5.MAQASID AL SHARIAH STARTEGY

Criteria for evaluating the Strategic Option

• SUITABILITY• relation to the state of the internal

and external environment[based on Situational Analysis

• FEASIBILITY• assessment of how it might work in

practice• ACCEPTABILITY

• consequences in terms of the risk and return to interested parties [shareholders, management, etc]

1. Competitive Advantage

[STRATEGIC OPTION]• Three Generic Strategies. [Porter 1985]

Competitive AdvantageLow Cost Differential

1. Cost Leadership 2. Differentiation

3A. Cost Focus 3B. Differential Focus

Com

petit

ive

Scop

e

N

arro

w T

arge

t

Bro

ad T

arge

t

1.1 Cost-Leadership Strategies [Examples of Successful Implementation ]

• BiC in ballpoint pens and disposable razors

• Black&Decker in tools

• Amstrad in consumer electronics

• Aldi and KwikSave in the retail grocery trade

• The Superdrug chemist chain

1.1.1 Cost-Leadership Strategies

[Striving for an overall low-cost position ]

• Leader in constructing the most efficient plants• Implementing cost-reducing technological advances• Keeping overhead and administrative costs to a

minimum• Containing costs in R&D, advertising, service and

distribution,• WHILE MAINTAINING PRODUCT QUALITY

• THE FIRM HAS SUPERIOR COORDINATION ACROSS LINKAGES IN THE VALUE CHAIN, WHILE KEEPING COSTS TO A MINIMUM IN EACH ACTIVITY

1.1.2 Cost-Leadership Strategies [Backfiring ]

• Ford Motor Company 1900, the low cost leader, successful strategy for decade• But fail to take into account the changing nature

of consumer preferences• Inflexibility, notably in production, and spread

right across the value chain into other activity, thus Ford could not respond to market change

• Example of Ford Model T 1900s for mass production at low costs, 55% market share in 1921 drop to 45% in 1925 and to 35% in 1926. Consumer shift to Chevrolet, little expansive but better specification.

1.1.3 Cost-Leadership Strategies [Possible Risks ]

• Technological Changes can result in cost or process breakthrough which nullify past investments and efficiency gains

• May be short-lived if rivals easily imitate the leader’s low-cost methods

• Shift in market with consumers being less price sensitive

• requires firms to be the overall cost leader - this would result in fierce competition and squeeze the profit until leader was established and recognized.

1.2 Differentiation Strategies [Examples of Successful Implementation ]

• Coca-Cola - A different taste• Rolex - Unusual quality and

distinctiveness• Mercedes Benz - Engineering design &

performance• Rolls Royce -Top-of-the-line image and

reputation • Sony - Technological leadership in

consumer electronics

1.2.1 Differentiation Strategies [Sustained Competitive Advantage is to come

from four areas ]

• Technical Superiority

• Quality

• Giving Customers More Support Services

• More Value [The Same Money

1.2.2 Differentiation Strategies [Be warned - there are risks ]

• May result in a selling price so high that buyers opt for lower-priced brand

• Buyers may decide, over a period of time, decide that they do not need extra features.

• Rival may imitate the product or service attributes - buyers cannot distinguish

• Broad-based differentiators may be out-maneuvered by specialist firms focusing on particular segment

1.3 Focus Strategies [Examples of Successful

Implementation ]

• Cray Computer - Large Main Frame• Rolls Royce - Luxury cars• Land Rover - Off Road Vehicles• Porsche - Unique Sports Cars• Lotus - Sports Cars Excellent Handling• Virgin Airline - Low-cost

transatlantic flight

1.3.1 Focus Strategies [Risks Involved ]

• Possibility that broad-range competitors will find effective ways to match the focused firm in serving market segment

• Unfavorable shifts in buyer preferences may leave the focuser without viable market

• Competitors may find sub- segments within the target segment and out focuses the focuser

2. DEVELOPMENT STRATEGIES

[Alternative Directions For Strategic Development]

Mo M1 M2 ……………………. .Mn

PL0

PL1

PL2

‘

.

.

PLn

Market Development

Prod

uct D

evel

opm

ent

Diversification

MarketPenetration

MarketProductLine

Paul Dobson & Ken Starkey [1993], The Strategic Management , Blackwell



• 1. MARKET PENETRATION• Continue with the same market with the same product• Increases its market share through improved quality or

productivity• Market share is maintained through consolidation

• 2. PRODUCT DEVELOPMENT• Develops new products while maintaining its present markets• Firms continually introducing product lines• Typically in consumer-oriented industries-tastes are changing• Products with short-life-cycle : computer, electronics products



• 3. MARKET DEVELOPMENT• Maintaining present product lines but

extends its market operation• Opening new market segments, devising

new uses for the products• Extending new geographical areas for its

present products Globalization



• 4. RELATED DIVERSIFICATION• Increasing the range of activities in the value chain• ‘Vertically integrate backwards’ towards its inputs

[e.g producing raw materials, machinery - for better quality and price

• ‘Vertically integrated forwards’ towards outputs[ e.g. moving to transportation, distribution, retailing, or services and maintenance, to have control over final product market.

• ‘Horizontally integrated’ towards substitute or complementary activities[ e.g. marketing-by-products]


[Alternative Directions For Strategic Development

• 5. UNRELATED DIVERSIFICATION• Covers beyond the boundaries of the industry presently

operates• Appropriate when current markets are saturated and/or

declining• New activities sought should be complementary to

current activities, either in terms of resources or finances [combined effect should be 3+3=8 [e.g join production, common use of facilities etc]

• Divisionalized or internally restructured the firm’ management bureaucracy


[Categories of Methods]• Internal Development

• Appropriate when activities requires a build-up knowledge and skills - highly technical in design or methods of manufacturing

• Acquisition• To enter new product or market areas [e.g. R&D,

knowledge of markets and products, production system, all these may take years to develop internally]

• Joint Development and Agency Relations• Entering into partnership or Joint venture• Franchising and agency

3. PORTFOLIO STRATEGIES

STARS PROBLEM CHILDREN

CASH COWS DOGS

Relative Market Share Position

Indu

stry

Gro

wt h

Rat

e

LO

W [S

low

er th

an

the

econ

omy

as a

who

le]

HIG

H [H

i ghe

r th

an

the

eco n

omy

a s a

wh o

l e]

[Boston Consulting Group [BCG] Growth-share matrix]

Note: The sizes of the circles indicate the sizes of revenues generated


• STARS• High Growth and High Share• Strongly placed in the growth phase of the product life cycle• Cash generation is strong but not sufficient to finance rapid

growth

• CASH COWS• Dominant products in a mature market• Produce excess cash that can be invested in STARS and

PROBLEM CHILD


• DOGS• Low-share products in low-share markets• Cash flow is usually low and can be negative due to

weak competitive position• Divest and re-allocate to STARS or PROBLEM

CHILDREN

• PROBLEM CHILDREN• Low-share of a growing market• Considerable cash is required to maintain share• Investment to create a star is risky


DOG

STAR

CASH COW

PROBLEM CHILD


[Drawbacks of BCG Growth Share Matrix]• Is mainly concerned with the uses of cash flows

• Its relies too heavily on the notion of product lifecycles and cost efficiency for generating profits

• It neglects that small market share can still result in high profits if product quality is high and unique.

• It limits the measurement to business strength [market share] and market attractiveness [growth rates] only.

3. PORTFOLIO STRATEGIES[McKinsey/ General Electric Attractiveness-

Strengths Matrix]

High Medium LowH

igh

Med

ium

Low

Industry AttractivenessB

usin

ess S

tr en g

th

Note:The sizes of circlesindicate the sizesof revenues generatedand the shadedareas in each circleindicate product’s market share


Strengths Matrix]• BUSINESS STRENGTH

• is measured in terms of organization’s ability and relative competitive position and to take into consideration:

• relative market shares• profit margins relative to competitors• able to compete on price and quality• knowledge of customer and market• competitive strength and weakness• technological capability• employee relations and goodwill• the caliber of management


Strengths Matrix]

• INDUSTRY ATTRACTIVENESS• is measured with reference to the operating and

general environment and addresses:• market size and its growth rates• industry profit margins [both historic and projected]• competitive intensity• economies of scale• the nature of demand [seasonality , cyclicality]• technology and capital requirements• barriers to entry and exist• social, environmental and legal impacts• emerging opportunities and threats

4. BLUE OCEAN STRATEGY

By W. Chan Kim –The Boston Consulting Group , Chair Professor of Strategy and International Management at

INSEAD, and

Renee Mauborgne, -The INSEAD Fellow and Professor of Strategy and

Management

BLUE OCEAN STRATEGYThe Essence:

“Creating Uncontested Market Space and Make Competition Irrelevant”

RED OCEAN STRATEGY BLUE OCEAN STRATEGY

Compete in existing market space Create uncontested market space

Beat the Competition Make the competition irrelevant

Exploit existing demand Create and capture new demand

Make the value-cost trade-off Break the value-cost trade-off

Align the whole systems of a firm’s activities with its strategic choice of differentiation or low cost.

Align the whole system of a firm’s activities in pursuit of differentiation and low costs

RED OCEAN STRATEGY vs BLUE OCEAN STRATEGY

BLUE OCEAN STRATEGY

Align the whole system of a firm’s activities in pursuit of differentiation and low costs

Head to Head Competition Blue Ocean Creation

INDUSTRY Focuses on rivals within its industry Looks across alternative industries

STRATEGIC GROUP Focuses on competitive position within strategic group

Looks across strategic groups within industries

BUYER GROUP Focuses on better serving the buyer groups

Redefines the industry buyer group

SCOPE OF PRODUCT OR SERVICE OFFERING

Focuses on maximizing the value product and service offering within the bounds of its industry

Looks across to complementary product and service offering

FUNCTIONAL -EMOTIONAL ORIENTATION

Focuses on improving price performance within the functional-emotional orientation of its industry

Rethinks the functional-emotional orientation of its industryTIMEX, BODYSHOP,

TIME Focuses on adapting to external trends as they occur

Participates in sharing external trends over timeiTUNE, MP3

From Head to Head Competition to Blue Ocean Creation

SIX PRINCIPLES OF BLUE OCEAN STRATEGY

Formulation Principles1. Reconstruct market boundaries. 2. Focus on the big picture, not the numbers3. Reach beyond existing demand4. Get the strategic sequence right

Execution Principles5. Overcome key organizational hurdles. 6. Build execution into strategy

Cirque du Soeil as an example of putting BLUE OCEAN STRATEGY back since 1984Cirque du Soeil [CDS], Canada’s largest cultural exports, created in 1984 by group of street performers.

CDS productions - 40 million people in 90 countries in less than 20 years. It revenues took champion of circus industries more than 100 years to attain.

CDS Success:1.Did not win by taking customers from shrinking circus industry2.Did not compete with Circus Players or Industry.3.It created uncontested new market space that made the competition irrelevant.4.It appealed to a whole new group of customers.5.CDS succeeded because it realized that to win in the future, companies must stop competing with each other.

MALAYSIAN Experience – From Blue Ocean to Red OceanThe first to introduce to the world the usage of e-Identification Cards.

MALAYSIAN Experience – From Blue Ocean to Red OceanThe first to introduce to the world the usage of e-Passport. Now it going to become a world standard.

My-Kad to I-KadFrom Blue Ocean to Red Ocean than to Blue Ocean

World’s First Variable Density Tunnel Boring Machine

Examples of Blue Ocean Strategy

Examples of Blue Ocean Strategy

The prime minister witnessed a memorandum of understanding signing between the Police and Malaysian Green Technology Corporation as well as DFRAN Technologies Research Sdn Bhd responsible in introducing the Revolo engine, first-of-its-kind plug-in technology for car and light commercial vehicles.The hybrid engine capable 1.Improving acceleration up to 40 %40 %, 2.Fuel efficiency by 35%, 3.Reduce emission by 30% 4.Lower travel cost by 25 %.

The Malaysian Police force kickstarted its 2014 Hybrid Revolo engine, first-of-its-kind plug-in technology for car and light commercial vehicles

5. MAQASID AL-SHARIAH STRATEGY

MAQASID = ULTIMATE OBJECTIVES

AL-SHARIAH = THE COMAMMADMENT OF ALLAH FOR ALL ASPECT OF HUMAN ACTIVITIES IN THIS WORLD

MANAGEMENT = ACTIVITIES OF THINKING, PLANNING, ORGINIZING, LEADING & CONTROLINGMAQASID AL- SHARIAH = ULTIMATE OBJECTIVES OF THE COMAMMADMENT OF ALLAH FOR ALL ASPECT OF HUMAN ACTIVITIES INCLUDING MANAGEMENT, IN THIS WORLD: 1. PROTECTION OF

RELIGION2. PROTECTION OF LIFE3. PROTECTION OF

OFFSPRING4. PROTECTION OF

INTELLECT5. PROTECTION OF

WEALTH

PARENTS, COMMUNITY LEADERS, COMPANY MANAGERS & NATION LEADERS

SHOULDUNDERSTAND AND APPLY THIS MAQASID

AL-SHARIAH IN MANAGING FAMILIES, COMMUNITIES, COMPANIES, NATIONS,

RESPECTIVELY.

SHAYA’A OTHMAN

MAQASID AL SHARIAH AS A CORPORATE

STARTEGY1. PROTECTION OF RELIGION2. PROTECTION OF LIFE3. PROTECTION OF OFFSPRING4. PROTECTION OF INTELLECT5. PROTECTION OF WEALTH 1. COMPETATIVE

STRATEGIES


3. PORTPOLIO STRATEGIES

4. BLUE OCEAN STRATEGY

FUNCTIONAL STRTAEGIES

FULFILLING THE ABOVE OBJECTIVES

OF SHARIAH

EVALUATION

• MISSION• To Score Distinction

• OBJECTIVE• To Understand

[ %]• To Applied

[ %]

Result of The Exam

Above 80% Distinction

A

MBA Strategic Management

Distinction

ASSIGMENT[ To get Distinction you must score 80% and above.

Below 50% is definitely failed ]

Explain in details how you can apply Maqasid Al- Shariah in Strategic

Management of your Organization or your Company.

[ To be submitted by 14 Rabi Al-Awal 1435 / 15. 01.2014 in Soft Copy to my e-Mail AND Hard Copy to of Office ]

e-Mail to [email protected]

strategic management: including application of maqasid al-shariah as strategic option

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