strategic management. definition strategic management is a continuous iterative process keeping an...

Strategic Management

Definition

Strategic management is a continuous iterative process keeping an organization fully matched with its environment.

“Without a strategy the

organization is like a ship

without a rudder, going

around in circles.”

Joel Ross and Michael Kami

“Quote”

Thinking Strategically:The Three Big Strategic Questions

1. Where are we now?

2. Where do we want to go?

– Business(es) to be in and market positions to stake out?

– Buyer needs and groups to serve?

– Outcomes to achieve?

3. How do we get there?

The Hows ThatDefine a Firm's Strategy

• How to grow the business

• How to please customers

• How to outcompete rivals

• How to respond to changing market conditions

• How to manage each functional piece of the business and develop needed organizational capabilities

• How to achieve strategic and financial objectives

Strategy is HOW

to . . .

Ch. 1-6

TerminologyTerminology

“Strategic Management”Synonymous with

“Strategic Planning”

• Strategic managementUsed more often in academia

• Strategic planningUsed more often in the business world

Ch. 1-7

TerminologyTerminology

• Strategic managementRefers to:

Strategy formulation Strategy implementation Strategy evaluation

• Strategic planningRefers to:

Strategy formulation

Ch. 1-8

Brief HistoryBrief History

• 1950sTerm strategic planning originates

1960s – 1970s Strategic planning very popular

Widely viewed as panacea for problems

Ch. 1-9

Brief HistoryBrief History

• 1980s Strategic planning cast aside

Planning models did not yield higher returns

• 1990s–till todayRevival of strategic planning

Widely practiced in business world

Ch. 1-10

Strategic-Management Process Three Strategic-Management Process Three StagesStages

Strategy Formulation

Strategy Implementation

Strategy Evaluation

Ch. 1-11

Strategy Formulation

Vision & Mission

Alternative Strategies

Long-Term Objectives

Strengths & Weaknesses

Opportunities & Threats

Strategy Selection

Ch. 1-12

Strategy FormulationStrategy Formulation

Issues include/ consideration:– What new businesses to enter– What businesses to abandon– How to allocate resources– Enter international markets– Merge or form joint venture

Ch. 1-13

Strategy Implementation

Motivate Employees

Policies

Annual Objectives

Resource Allocation

Ch. 1-14

Strategy ImplementationStrategy Implementation

Action Stage of strategic management:– Most difficult stage – Mobilizing employees and managers– Consensus on pursuing goals

Ch. 1-15

Strategy Evaluation

Corrective Action

Measure Performance

ReviewStandards

Ch. 1-16

Key Strategic Management Terms Key Strategic Management Terms (Cont’d)(Cont’d)

1. Strategists2. Vision statements3. Mission statements4. External opportunities and threats5. Internal strengths and weaknesses

Ch. 1-17

Key Strategic Management Terms Key Strategic Management Terms (Cont’d)(Cont’d)

6. Long-term objectives7. Strategies8. Annual objectives9. Policies

Ch. 1-18

Strategic Management Terms (Cont’d)Strategic Management Terms (Cont’d)

Strategists • Usually found in high levels of management (CEO)– Most responsible for success or failure of an

organization– Various job titles:

• Chief executive officer• President• Owner• Chair of the Board• Executive Director• Entrepreneur

Ch. 1-19

Vision Statements • Answers the question: “What do we want to become?”

First step in strategic planning

Oftentimes a single sentence

“Our vision is to take care of your vision.” (Stokes Eye Clinic, Florence, South Carolina)

Strategic Management Strategic Management Terms (Cont’d)Terms (Cont’d)

Mission statement

Mission Statement– What is our business?

Examples: Mission and Vision Statements

Our vision: Getting to a billion connected computers

worldwide, millions of servers, and trillions of dollars

of e-commerce. Intel’s core mission is being the

building block supplier to the Internet economy and

spurring efforts to make the Internet more useful.

Being connected is now at the center of people’s

computing experience. We are helping to expand the

capabilities of the PC platform and the Internet.

Intel

Ch. 1-22

External Opportunities & Threats • Largely beyond the control of a single organization• Significantly benefit or harm the organization in the

futurePoliticalEconomic Social and CulturalTechnological

Strategic Management Terms (Cont’d)Strategic Management Terms (Cont’d)

Basic tenet of strategic management

• Strategy formulation to: – Take advantage of external opportunities– Avoid or reduce impact of external threats

© 2001 Prentice Hall Ch. 1-24

Internal Strengths & Weaknesses (Cont’d)• Based on functional analysis of activities in the

firm’s:– Controllable activities performed especially well

or poorly.– Arise in functional areas of the business:

• Management• Marketing• Finance/accounting• Production/operations• Research & development• Computer Information Systems

Strategic Management Terms Strategic Management Terms (Cont’d)(Cont’d)

Ch. 1-25

Long-Term Objectives • Results to be achieved in pursuing the organization’s

mission. Time frame is beyond one year.State directionAid in evaluationFocus coordinationProvide basis for effective management

Strategic Management Terms (Cont’d)Strategic Management Terms (Cont’d)

Types of Objectives Required

Outcomes focused on improving financial performance

Outcomes focused on improving long-term, competitive business position

Financial Objectives Strategic Objectives

$

Examples of Financial Objectives• Grow earnings per share 15% annually

• Boost annual return on investment from 15% to 20% within three years

• Increase annual dividends per share to stockholders by 5% each year

• Maintain a positive cash flow every year

Examples of Strategic Objectives

• Increase firm’s market share • Overtake key rivals on quality or customer

service or product performance• Attain lower overall costs than rivals• Boost firm’s reputation with customers• Attain stronger foothold in international markets• Achieve technological superiority• Become leader in new product introductions

Ch. 1-29

Strategies • Potential actions that require top management

decisions and large amounts of firm’s resources• Mechanisms by which long-term objectives are

realized(achieved)Geographic expansionDiversificationProduct development

Strategic Management Terms (Cont’d)Strategic Management Terms (Cont’d)

Ch. 1-30

Strategies (cont’d)

• Mechanisms by which long-term objectives are realizedMarket penetrationRetrenchmentLiquidation

Strategic Management Terms Strategic Management Terms (Cont’d)(Cont’d)

Ch. 1-31

Annual Objectives

• Short-term milestones necessary to achieve long-term objectives.

Strategic Management Terms (Cont’d)Strategic Management Terms (Cont’d)

Ch. 1-32

Annual Objectives (cont’d)

• Stated in terms of accomplishments for:management marketing finance/accounting production/operations research and development information systems accomplishments

Strategic Management Terms Strategic Management Terms (Cont’d)(Cont’d)

Ch. 1-33

Policies• Important in strategy implementation as the means by

which annual objectives will be achieved

Guide to decision making and address repetitive situations

Strategic Management Terms Strategic Management Terms (Cont’d)(Cont’d)

Strategic Management ProcessStrategic Management Process

Vision &

Mission Statements

ExternalEnviron-

mentAnalysis

InternalEnviron-

mentAnalysis

Long-TermGoals &

Objectives

StrategyFormulation

Strategy:

ImplementationStrategy

Evaluation

Functional Strategies

Corporate Strategies

Competitive Strategies

Figure 1-1: The Five Tasksof Strategic Management

Craft aStrategy

to AchieveObjectives

SetObjectives

Develop aStrategic

Visionand

Mission

Implementand

ExecuteStrategy

Improve/Change

Revise asNeeded

Revise asNeeded

Improve/Change

Recycleas Needed

Task 1 Task 2 Task 3 Task 4 Task 5

Monitor,Evaluate,and Take

CorrectiveAction

Ch. 1-36

• Allows an organization to be proactive than reactive

• Increases commitment

• Empowerment by participation

• Gives direction to organizational activities • Increases sales, profitability and

productivity

Benefits of Strategic ManagementBenefits of Strategic Management

Ch. 1-37

Enhanced awareness of external threatsUnderstanding of competitors’ strategiesReduced resistance to changeView change as opportunity

Benefits of Strategic Management Benefits of Strategic Management (Cont’d)(Cont’d)

Ch. 1-38

• Poor reward structures• Fire-fighting• Waste of time• Too expensive• Laziness• Content with success

Why Some Firms Do Why Some Firms Do NoNo Strategic Planning Strategic Planning

Ch. 1-39

• Fear of failure• Overconfidence• Prior bad experience• Self-interest• Fear of the unknown• Suspicion

Why Some Firms Do Why Some Firms Do NoNo Strategic Planning (Cont’d) Strategic Planning (Cont’d)

Ch. 1-40

• Failing to communicate to employees• Top management not supportive of process• Failing to use as standard for performance

measurement• Failing to involve key personnel• Failing to create collaborative environment• Formality that stifles creativity and flexibility

Pitfalls to Avoid in Strategic PlanningPitfalls to Avoid in Strategic Planning

Ch. 1-41

Defined:Principles of conduct within organizations that

guide decision making and behavior

• Good business ethics is a prerequisite for good strategic management

• Good ethics is just good business!• Strategists responsible for high ethical

principles

Business Ethics & Strategic PlanningBusiness Ethics & Strategic Planning

Ch. 1-42

Business actions always unethical include:

• Misleading advertising• Misleading labeling• Environmental harm• Poor product or service safety• Dumping flawed products on foreign markets

Business Ethics & Strategic Planning Business Ethics & Strategic Planning (Cont’d)(Cont’d)

Ch. 1-43

Nature of Global CompetitionNature of Global Competition

• Companies conduct business across bordersInternational or multinational corporations

Parent company Host country

• Strategy implementation more difficultCultural differences

Norms, values, work ethics

Ch. 1-44

Advantages of International Advantages of International OperationsOperations

• Reduce unit costs• Low-cost production facilities• Lower labor costs• Competition less intense• Reduced tariffs, lower taxes• Favorable political climate

Ch. 1-45

Communication difficulties between parent and subsidiaries• Based on cultural, political, social, language,

demographic, and competitive forces

Foreign-based competitors • Strengths underestimated• Weaknesses overestimated

Disadvantages of International Disadvantages of International OperationsOperations