Definition of Strategic Definition of Strategic ManagementManagement

Strategic management is a process Strategic management is a process through which:through which: Organizations analyze and learn from their Organizations analyze and learn from their

internal and external environments,internal and external environments, Establish strategic direction,Establish strategic direction, Create strategies that are intended to move Create strategies that are intended to move

the organization in that direction, andthe organization in that direction, and Implement those strategiesImplement those strategies

All in an effort to satisfy key stakeholdersAll in an effort to satisfy key stakeholders

StakeholdersStakeholders

Groups or individuals who can significantly Groups or individuals who can significantly affect or are significantly affected by an affect or are significantly affected by an organization’s activitiesorganization’s activities

A Typical Stakeholder MapA Typical Stakeholder Map

The OrganizationThe Organization

Owners/Board of DirectorsOwners/Board of DirectorsManagersManagers

EmployeesEmployees

FinancialFinancialIntermediariesIntermediaries

Government AgenciesGovernment Agenciesand Administratorsand Administrators

LocalLocalCommunitiesCommunities

CompetitorsCompetitors

SuppliersSuppliers CustomersCustomers

ActivistActivistGroupsGroups

UnionsUnions The MediaThe Media

Three Perspectives on Strategic Three Perspectives on Strategic ManagementManagement

Traditional PerspectiveTraditional Perspective

Resource-based ViewResource-based View

Stakeholder ViewStakeholder View

Table 1.1, page 6

Table 1.1, page 6

Traditional PerspectiveTraditional Perspective

Analysis of the internal and external Analysis of the internal and external environments of the organization to arrive environments of the organization to arrive at organizational strengths, weaknesses, at organizational strengths, weaknesses, opportunities, and threats (SWOT), which opportunities, and threats (SWOT), which form the basis for developing effective form the basis for developing effective missions, goals, and strategies.missions, goals, and strategies.

Resource-based ViewResource-based View

Consider the firm as a bundle of Consider the firm as a bundle of resources; firms can gain competitive resources; firms can gain competitive advantage through possessing superior advantage through possessing superior resourcesresources

Stakeholder ViewStakeholder View

Envisions the firm at the center of a Envisions the firm at the center of a network of constituencies called network of constituencies called stakeholders; firms can gain competitive stakeholders; firms can gain competitive advantage through superior stakeholder advantage through superior stakeholder managementmanagement

Three Perspectives on Strategic Three Perspectives on Strategic ManagementManagement

Traditional PerspectiveTraditional Perspective OriginOrigin

• Economics, other business disciplines, and consulting firmsEconomics, other business disciplines, and consulting firms View of FirmView of Firm

• An economic entityAn economic entity Approach to Strategy FormulationApproach to Strategy Formulation

• Situation analysis of internal and external environments Situation analysis of internal and external environments leading to formulation of mission and strategiesleading to formulation of mission and strategies

Source of Competitive AdvantageSource of Competitive Advantage• Best adapting the organization to its environment by taking Best adapting the organization to its environment by taking

advantage of strengths and opportunities and overcoming advantage of strengths and opportunities and overcoming weaknesses and threatsweaknesses and threats

Traditional Strategic Management Traditional Strategic Management ProcessProcess

StrategicDirection(mission & goals)

Strategy Formulation(take advantage of

strengths/overcome weaknesses & threats)

Strategy Implementation(development &

execution of implementation plans)

Situation Analysis(external environment)

Strategy FundamentalsStrategy Fundamentals

Traditional ViewTraditional View Environmental Environmental

determinism determinism (the (the best strategy is best strategy is determined by the determined by the environment)environment)

Firms should Firms should adapt adapt to the environmentto the environment

Strategy is Strategy is deliberatedeliberate (intended)(intended)

Contemporary ViewContemporary View EnactmentEnactment (firms can (firms can

influence their influence their environments)environments)

A firm should pursue A firm should pursue actions to make the actions to make the environment more environment more hospitablehospitable

Strategy Strategy emergesemerges from from a stream of decisions a stream of decisions as firms learnas firms learn

Three Perspectives on Strategic Three Perspectives on Strategic ManagementManagement

Resource-based ViewResource-based View OriginOrigin

• Economics, distinctive competencies and general Economics, distinctive competencies and general management capabilitymanagement capability

View of FirmView of Firm• A collection of resources, skills and abilitiesA collection of resources, skills and abilities

Approach to Strategy FormulationApproach to Strategy Formulation• Analysis of organizational resources, skills and abilities. Analysis of organizational resources, skills and abilities.

Acquisition of superior resources, skills and abilitiesAcquisition of superior resources, skills and abilities Source of Competitive AdvantageSource of Competitive Advantage

• Possession of resources skills and abilities that are valuable, Possession of resources skills and abilities that are valuable, rare and difficult to imitate by competitorsrare and difficult to imitate by competitors

The Organization as a Bundle of The Organization as a Bundle of ResourcesResources

Organizational Organizational KnowledgeKnowledge

and Learningand Learning

General OrganizationalResources

•Firm ReputationFirm Reputation•Brand Names and PatentsBrand Names and Patents

•ContractsContracts•Stakeholder RelationshipsStakeholder Relationships

Physical Resources•Plants and EquipmentPlants and Equipment

•Organizational LocationsOrganizational Locations•Access to Raw MaterialsAccess to Raw Materials

Human Resources•Skills, Background and Skills, Background and

Training of Managers and Training of Managers and EmployeesEmployees

•Organization StructureOrganization Structure

Financial Resources•Internal and External Internal and External Sources of FinancingSources of Financing•Financial StrengthFinancial Strength

Resources and Resources and stakeholdersstakeholders

Most of the resources that a Most of the resources that a firm can acquire or develop firm can acquire or develop are directly linked to a are directly linked to a company’s stakeholders.company’s stakeholders.

Three Perspectives on Strategic Three Perspectives on Strategic ManagementManagement

Stakeholder ViewStakeholder View OriginOrigin

• Business ethics and social responsibilityBusiness ethics and social responsibility View of FirmView of Firm

• A network of relationships among the firm and its A network of relationships among the firm and its stakeholdersstakeholders

Approach to Strategy FormulationApproach to Strategy Formulation• Analysis of the economic power, political influence, rights and Analysis of the economic power, political influence, rights and

demands of various stakeholders demands of various stakeholders Source of Competitive AdvantageSource of Competitive Advantage

• Superior linkages with stakeholders leading to trust, goodwill, Superior linkages with stakeholders leading to trust, goodwill, reduced uncertainty, improved business dealings and reduced uncertainty, improved business dealings and ultimately higher firm performanceultimately higher firm performance

A Typical Stakeholder MapA Typical Stakeholder Map

The OrganizationThe Organization

Owners/Board of DirectorsOwners/Board of DirectorsManagersManagers

EmployeesEmployees

FinancialFinancialIntermediariesIntermediaries

Government AgenciesGovernment Agenciesand Administratorsand Administrators

LocalLocalCommunitiesCommunities

CompetitorsCompetitors

SuppliersSuppliers CustomersCustomers

ActivistActivistGroupsGroups

UnionsUnions The MediaThe Media

Can External Stakeholders Be Can External Stakeholders Be Managed?Managed?

Traditionally, at least in U.S., Traditionally, at least in U.S., management theory has focused management theory has focused on internal (e.g., employees) on internal (e.g., employees) rather than external stakeholdersrather than external stakeholders

Can External Stakeholders Be Managed?Can External Stakeholders Be Managed?

Internal Stakeholder Internal Stakeholder ManagementManagement

Nature of RelationshipNature of Relationship• ContractualContractual

Physical LocationPhysical Location• Predominantly inside Predominantly inside

organization structure, organization structure, sometimes geographically sometimes geographically diversediverse

Motivation to PerformMotivation to Perform• Regular payments, retention, Regular payments, retention,

bonuses, common purpose, bonuses, common purpose, persuasionpersuasion

Direct ControlDirect Control• Schedules, plans, sometimes Schedules, plans, sometimes

direct supervisiondirect supervision

External Stakeholder External Stakeholder ManagementManagement

Nature of RelationshipNature of Relationship• Contractual, legal or informalContractual, legal or informal

Physical LocationPhysical Location• Predominantly outside Predominantly outside

organizational structure; organizational structure; sometimes includedsometimes included

Motivation to PerformMotivation to Perform• Regular payments, retention, Regular payments, retention,

incentives, bonuses, common incentives, bonuses, common purpose, persuasionpurpose, persuasion

Direct ControlDirect Control• Schedules, plans, less often Schedules, plans, less often

direct supervisiondirect supervision

Can External Stakeholders Be Managed?Can External Stakeholders Be Managed?

Internal Stakeholder Internal Stakeholder ManagementManagement

CommunicationCommunication• E-mail, face-to-face, E-mail, face-to-face,

telephone, memos, telephone, memos, directives, policiesdirectives, policies

Involvement in Involvement in Organizational DecisionsOrganizational Decisions

• Employee involvement Employee involvement varies from organization to varies from organization to organization, but it is organization, but it is increasingincreasing

Importance of TrustImportance of Trust• HighHigh

External Stakeholder External Stakeholder ManagementManagement

CommunicationCommunication• E-mail, face-to-face, E-mail, face-to-face,

telephone, memos, telephone, memos, directives, policiesdirectives, policies

Involvement in Organizational Involvement in Organizational DecisionsDecisions

• External stakeholder External stakeholder involvement varies from involvement varies from organization to organization, organization to organization, but it is increasingbut it is increasing

Importance of TrustImportance of Trust• HighHigh

Trustworthy Partnering BehaviorTrustworthy Partnering Behavior

Global Global CompetitionCompetition

TechnologicalTechnological ComplexityComplexity

OrganizationalOrganizationalInterdependenceInterdependence

Need for Need for Trustworthy Trustworthy Partnering Partnering BehaviorBehavior

TrustworthyTrustworthyBehaviorBehavior

Behavior thatBehavior thatViolates TrustViolates Trustand Fairnessand Fairness

Good ReputationGood Reputation

Committed EffortCommitted Effortby Stakeholdersby Stakeholders

Stakeholders EagerStakeholders Eagerto Conduct Businessto Conduct Business

Poor ReputationPoor Reputation

Stakeholders Avoid Stakeholders Avoid TransactionsTransactions

Stakeholders Not Stakeholders Not CommittedCommitted

Legal Suits, Legal Suits, Cancellations,Cancellations,Boycotts, etc.Boycotts, etc.

A Combined Perspective of Strategic A Combined Perspective of Strategic ManagementManagement

ProcessProcess Firms conduct external and internal analysis (situation analysis), Firms conduct external and internal analysis (situation analysis),

which include analysis of stakeholders. On the basis of which include analysis of stakeholders. On the basis of information obtained, they create strategic direction, strategies, information obtained, they create strategic direction, strategies, tactics for implementing strategies and control systemstactics for implementing strategies and control systems

OriginOrigin Traditional, resource-based and stakeholder perspectivesTraditional, resource-based and stakeholder perspectives

Adaptation vs. EnactmentAdaptation vs. Enactment Influence the environment when it is economically feasible to do Influence the environment when it is economically feasible to do

so. Take a proactive stance with regard to managing external so. Take a proactive stance with regard to managing external stakeholders. Monitor, forecast and adapt to environmental stakeholders. Monitor, forecast and adapt to environmental forces that are difficult or costly to influence.forces that are difficult or costly to influence.

A Combined Perspective of Strategic A Combined Perspective of Strategic ManagementManagement

Deliberate vs. EmergentDeliberate vs. Emergent Firms should be involved in deliberate strategy-creating Firms should be involved in deliberate strategy-creating

processes. However, they should learn from past decisions processes. However, they should learn from past decisions and be willing to try new things and change strategic courseand be willing to try new things and change strategic course

Source of Competitive AdvantageSource of Competitive Advantage superior resources, including knowledge-based resources, superior resources, including knowledge-based resources,

superior strategies for managing those resources and/or superior strategies for managing those resources and/or superior relationships with internal or external stakeholders superior relationships with internal or external stakeholders (which are another type of resource)(which are another type of resource)

Creation of Strategic AlternativesCreation of Strategic Alternatives Develop strategies to take advantage of strengths and Develop strategies to take advantage of strengths and

opportunities or overcome weaknesses or threats. opportunities or overcome weaknesses or threats.

The Strategic Management ProcessThe Strategic Management Process

EstablishEstablishStrategicStrategicDirectionDirection

(Ch. 4)(Ch. 4)

Formulate StrategiesFormulate StrategiesBusiness-Unit (Ch. 5)Business-Unit (Ch. 5)

Entrepreneurship (Ch. 6)Entrepreneurship (Ch. 6)Corporate-Level (Ch. 7)Corporate-Level (Ch. 7)

Implement StrategiesImplement Strategies& Establish Controls& Establish Controls

(Chs. 8 & 9)(Chs. 8 & 9)

Analyze the Environment, Analyze the Environment, Stakeholders and Stakeholders and

Organizational Resources Organizational Resources (Chs. 2 & 3)(Chs. 2 & 3)

Situation AnalysisSituation Analysis

Situation AnalysisSituation Analysis

Analysis of stakeholders Analysis of stakeholders inside and outside the inside and outside the organization, as well as other organization, as well as other external forcesexternal forces

Strategic DirectionStrategic Direction

Pertains to the longer-term Pertains to the longer-term goals and objectives of the goals and objectives of the organization; this direction is organization; this direction is often contained in mission and often contained in mission and vision statementsvision statements

Strategy FormationStrategy Formation

The process of planning The process of planning strategies; often divided into strategies; often divided into the corporate, business, and the corporate, business, and functional levels functional levels

Strategy ImplementationStrategy Implementation

Managing stakeholder Managing stakeholder relationships and organizational relationships and organizational resources in a manner that moves resources in a manner that moves the organization towards the the organization towards the successful execution of its successful execution of its strategies, consistent with its strategies, consistent with its strategic direction strategic direction

Strategy Formulation in a Multi-Strategy Formulation in a Multi-business Organizationbusiness Organization

Entire CorporationEntire Corporation(Corporate Level:(Corporate Level:Domain Definition)Domain Definition)

Business 2Business 2(Business Level:(Business Level:

Domain Direction/Navigation)Domain Direction/Navigation)

Business 1Business 1(Business Level:(Business Level:

Domain Direction/Navigation)Domain Direction/Navigation)

Marketing Finance Operations Research Human ResourcesMarketing Finance Operations Research Human Resources

(Functional Level: Implementation and Execution)(Functional Level: Implementation and Execution)

Strategic Planning Process vs. Strategic Planning Process vs. Strategic ThinkingStrategic Thinking

The The strategic planning processstrategic planning process is often rigid is often rigid and unimaginative, with detailed and unimaginative, with detailed instructions pertaining to every aspect of instructions pertaining to every aspect of the processthe process

Strategic thinkingStrategic thinking leads to creative leads to creative solutions and new ideas, more flexible.solutions and new ideas, more flexible.

The best firms use both! The best firms use both!

Elements of Strategic ThinkingElements of Strategic Thinking Intent FocusedIntent Focused

Strategic intent--a managerial vision of where the firm is goingStrategic intent--a managerial vision of where the firm is going

ComprehensiveComprehensive A “systems” perspective. Envisions the firm as a part of a larger A “systems” perspective. Envisions the firm as a part of a larger

system of value creation.system of value creation.

OpportunisticOpportunistic Seizes unanticipated opportunities Seizes unanticipated opportunities

Long-term OrientedLong-term Oriented Looks several years into the future at what the firm will becomeLooks several years into the future at what the firm will become

Built on Past and PresentBuilt on Past and Present learns from the past and builds on a foundation of the realities of learns from the past and builds on a foundation of the realities of

the presentthe present

Hypothesis DrivenHypothesis Driven Creative ideas are then critically evaluated. Takes risksCreative ideas are then critically evaluated. Takes risks