Basic Concepts of Strategic Management

"Effective managers live in the present – but concentrate on the future." James L. Hayes     

• A combination of the words stratos, which meant “army”, and agein meaning “to lead”.

Greek Language (6th century BC)

What is Strategy?

• A strategy is a comprehensive action plan that identifies long-term direction and guides resource utilization to accomplish organizational goalswith sustainable competitive advantage.

What is Strategy?

Process of formulating, implementing, and evaluating, strategies to accomplish long-term goals and sustain competitive advantage.

Strategic Management

Strategic Audit

21st Century Challenges in Strategic Management

• Process is more an “art” than “science”

• Should strategies be visible or hidden from stakeholders

• Should process be more top-down or bottom up

Basic financial planning:

-little analysis;

-info coming from within the firm;

-only managers are involved;

-takes 2-3 weeks;

- one year plan

Forecast-based planning:

-more thorough analysis;

-internal info + environmental data;

-only managers are involved;

-takes one month;

-three to five years -plan

Strategic planning: -more thorough -analysis;

-internal info + environmental data +forecast future trends;

-made by planning staff (top managers)+ consultants;

-meet once a year;

- five-year plans

Strategic management: -analysis of external and internal environment;

-implementation, evaluation and control;

-made by lower level managers+ top managers+ consultants; -throughout the year;

- five-year plans

Phases of Strategic Management

• Clear sense of strategic vision of the firm

• Sharper focus on what is strategically important

• Improved understanding of a rapidly changing environment

Benefits of Strategic Management

• Where is organization now?

• If no changes are made, where will the organization be in 1,2,5 years?

• If the answers are not acceptable, what specific actions should management undertake?

• What are risks and payoffs

involved?

Main Questions

Environmental Scanning

StrategyFormulation

Strategy Implementation

Evaluationand

Control

Basic Model of Strategic Management

External: Social Environment

Environmental Scanning

External: Task Environment

Internal: Structure

Internal: Culture

Internal: Resources

Opportunities & Threats (External)

Analysis of Trends:

• Economic

• Social

• Cultural

• Demographic/Environmental

• Political, Legal, Governmental

• Technological

• Competitors

Environmental Scanning

Strengths & Weaknesses (Internal)

Typically located in functional areas of the firm

• Management

• Marketing

• Finance/Accounting

• Production/Operations

• Research & Development

• Computer Information Systems

Environmental Scanning

Vision & Mission

Strategy Formulation

Objectives

Strategies

Policies

Vision Statement –What do we want to become?

Mission Statement –What is our business?

Strategy Formulation

• What is our business mission?• Who are our customers?• What do our customers

consider value?• What have been our results?• What is our plan?

Key Strategic Questions

by Peter Drucker

Strategy Formulation

To be the happiest place on earth.

To be the world’s best quick service restaurant.

Vision Examples

We should build good ships here – at a profit if we can – at a loss if we must – but always good ships

Mission Statement Example

-- Newport News Shipbuilding

(since foundation in 1886)

The Bellevue Hospital, with respect, compassion, integrity, and courage, honors the individuality and confidentiality of our patients, employees, and community, and is progressive in anticipating and providing future health care services.

Mission Statement Example

-- The Bellevue Hospital

WellPoint redefine our industry: through a new generation of consumer-friendly products that put individuals back in control of their future.

The WellPoint companies provide health security by offering a choice of quality branded health and related financial services designed to meet the changing expectations of individuals, families, and their sponsors throughout a lifelong relationship.

WellPont health Network’s Vision and Mission

Importance of Mission

MissionResource Allocation

Unanimity of Purpose

Organizational Climate

Focal point for work structure

Benefits from a strong mission

Mission Elements

CustomersMarkets

Employees

PublicImage

Self-Concept Philosophy

SurvivalGrowthProfit

ProductsServices

Technology

The end results of planned activity:• what is to be accomplished• by when • it should be quantified if possible

“…increase profits 10% over last year”

Objectives

Strategy Formulation

Types of Strategies

Operational Level

Functional Level

Division Level

Corp Level

A Large Company

Strategy Formulation

• Corporate strategy directs the organization as a whole toward sustainable competitive advantage.

• Business strategy sets the strategic direction

for a single business unit or product line.

• Functional strategy guides the use of resources to implement business strategy.

Strategies

Strategy Formulation

Being Better versus Being DifferentPlaying the Game Better

Focus on your existing strategic position and try to improve it and make it better. Practices such as restructuring, refocusing, process reengineering, quality programs, empowering employees, and the like, all aim to achieve this

Playing the Game Differently

Try to identify:

• new or unexploited customer segments to focus on (a new “WHO”)

• new customer needs that no competitor is currently satisfying (a new “WHAT”)

• new ways of producing, delivering, selling or distributing your products or services (a new “HOW”)

…to be successful, a company must be able to do BOTH!

Constantinos Markides

A policy is a broad guideline for decision making that

links the formulation of strategy with its implementation.

• Maytag Company: Maytag will not approve any cost reduction

proposal if it reduces product quality in any way.

• 3M: Researches should spend 15% of their time working on something other than their primary project.

• GE: GE must be number one or two wherever it competes.

• Intel: Intel cannibalizes its own product line with better products before a competitor does so.

Policies

Strategy Formulation

Strategy Implementation

Programs

Budgets

Procedures

• A program is a statement of the activities or steps needed to accomplish a single-use plan.

• A budget is a statement of a corporation’s program in terms of dollars.

• Procedures are a system of steps or techniques that describe in detail how a particular task or job is to be done.

Strategy Implementation

Strategy Evaluation & Control

Internal Review

External Review

Measuring Performance

Strategic audit

Feedback/Learning Process

Internal/External Review

Revision of Decisions

Corrective Actions

• Rare: strategic decisions are unusual and typically have no precedent to follow

• Consequential: strategic decisions commit substantial resources and demand a great deal of commitment from people on all levels.

• Directive: strategic decisions set precedents for lesser decisions and future actions throughout an organization.

Strategic Decisions Characteristics: