1

Strategic ManagementStrategic Management

Syed Masud Husain

ProfessorDepartment of Accounting &

Information SystemsUniversity of Dhaka

2

Introduction Introduction

Strategic Management can be defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives.

SM focuses on integrating management, marketing, finance/accounting, production/operations, research and development, and computer information systems to achieve organizational success.

Strategic Management = Strategic Planning Earlier used term: Business Policy

3

Stages of Strategic ManagementStages of Strategic Management

Strategic Management process consists of three stages: Strategy Formulation, Strategy Implementation, and Strategy Evaluation.

Integrating Intuition and Analysis:The SM process can be described as an Objective, logical,

systematic approach for making major decisions in an organization. It attempts to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty. Based on past experiences, judgment and feelings, most people recognize that INTUITION is essential to making good strategic decisions.

4

Adapting to ChangeAdapting to Change

The SM process is based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. The rate and magnitude of changes that affect organizations are increasing dramatically.

Example: e-commerce, laser surgery, the war on terrorism, economic recession, the aging population, the Enron scandal, and merger mania.

To survive all organizations must adapt to changes.

5

StrategistsStrategists

Strategists are the individuals who are most responsible for the success or failure of an organization.

Titles of strategists: CEO, President, Owner, Chairman, Executive Director, Chancellor, Dean or Entrpreneur.

Strategists help an organization gather, analyze and organize information.

The CEO is the most visible and critical strategic manager.

6

Vision and Mission StatementsVision and Mission Statements Vision and Mission Statements

External Opportunities and Threats Economic Social Cultural Demographic Environmental Political Legal Governmental Technological Competitive trends and events

7

Internal Strengths and WeaknessesInternal Strengths and Weaknesses Organization’s controllable activities that are

performed especially well or poorly.

Long Term Objectives Specific results that an organization seeks to achieve in

pursuing its basic mission

Strategies The means by which long-term objectives will be

achieved May include: geographic expansion, diversification,

acquisition, product development, market penetration, retrenchment, divestiture, liquidation, joint ventures…..

8

Annual ObjectivesAnnual Objectives Short-term milestones that organizations must

achieve to reach long term objectives

Policies The means by which annual objectives will be

achieved (include: guidelines, rules and procedures)

9

The Strategic Management ModelThe Strategic Management ModelDevelop vision and mission statementsEstablish long-term objectivesGenerate, evaluate, select strategiesImplement strategies – Management IssuesImplement Strategies – Marketing,

Accounting, Finance, R&D, MIS IssuesMeasure and evaluate performance

10

The Strategic Management The Strategic Management ProcessProcess

Benefits of Strategic Management:

FinancialNon-financial

Benefits of Strategic Management:

FinancialNon-financial

11

Principal benefit of SM has been to Principal benefit of SM has been to help organizations formulate better help organizations formulate better strategies through the use of a more strategies through the use of a more systematic, logical and rational systematic, logical and rational approach to strategic choiceapproach to strategic choice

Financial benefits: More profitable and successful than others

High performing firms seem to make informed decisions

More than 100,000 businesses fail annually in USA

12

Non-financial benefitsNon-financial benefits It allows for identification, prioritization, and

exploitation of opportunities. It provides an objective view of management

problems. It represents a framework for improved

coordination and control of activities. It minimizes the effects of adverse conditions

and changes. It allows major decisions to better support

established objectives. It allows more effective allocation of time and

resources to unidentified opportunities.

13

Contd…..Contd….. It allows fewer resources and less time to be

devoted to correcting erroneous or ad hoc decisions.

It creates a framework for internal communication among personnel.

It helps integrate the behavior of individuals into a total effort.

It provides a basis for clarifying responsibilities.

It encourages a favorable attitude toward change.

It gives a degree of discipline and formality to the management of a business.

14

Why some firms Why some firms do no strategic do no strategic

planning?planning?

15

Poor reward Structure— Fire-fighting— Waste of time— Too Expensive— Laziness— Fear of failure— Overconfidence— Prior bad experience— Self-Interest— Fear of the unknown— Honest difference of opinion— Suspicion—

16

Pitfalls in strategic planningPitfalls in strategic planningUsing strategic planning to gain control

over decisions and resources Doing strategic planning only to satisfy

accreditation or regulatory requirements Too hastily moving from mission

development to strategy formulationFailing to communicate the plan to

employees, who continue working in the dark

Top managers making many intuitive decisions that conflict with the formal plan

17

Contd…..Contd…..Top managers not actively supporting

the strategic-planning process Failing to use plans as a standard for

measuring performanceDelegating planning to a “planner”

rather than involving all managers Failing to involve key employees in all

phases of planning Failing to create a collaborative climate

supportive of change

18

Contd…Contd…Viewing planning to be unnecessary or

unimportantBecoming so engrossed in current

problems that insufficient or no planning is done

Being so formal in planning that flexibility and creativity are stifled

19

Guidelines for Effective Guidelines for Effective Strategic Strategic ManagementManagement“Even the most technically perfect “Even the most technically perfect strategic plan will serve little purpose strategic plan will serve little purpose if it is not implemented. Many if it is not implemented. Many organizations tend to spend an organizations tend to spend an inordinate amount of time, money, inordinate amount of time, money, and effort on developing the strategic and effort on developing the strategic plan, treating the means and plan, treating the means and circumstances under which it will be circumstances under which it will be implemented as afterthoughts! implemented as afterthoughts!

20

Change comes through Change comes through implementation and evaluation, not implementation and evaluation, not through the plan. A technically through the plan. A technically imperfect plan that is implemented imperfect plan that is implemented well will achieve more than the well will achieve more than the perfect plan that never gets off the perfect plan that never gets off the paper on which it is typed.”paper on which it is typed.”

21

BUSINESS ETHICS AND STRATEGIC MANAGEMENT

Business Ethics can be defined as 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.

No society anywhere in the world can compete very long or successfully with people stealing from one another or not trusting one another, with every bit of information requiring notarized confirmation, with every disagreement ending up in litigation, or with government having to regulate businesses to keep them honest.

22

Comparing Business and Comparing Business and Military StrategyMilitary Strategy A strong military heritage A strong military heritage underlines the study of underlines the study of strategic management. Terms strategic management. Terms such as such as objectives, mission, objectives, mission, strengths, strengths, andand weaknesses weaknesses first were formulated to first were formulated to address problems of address problems of battlefield.battlefield.

23

When Napoleon won, it was When Napoleon won, it was because his opponents were because his opponents were committed to the strategy, tactics, and committed to the strategy, tactics, and organization of earlier wars. When he organization of earlier wars. When he lost – against Wellington, the lost – against Wellington, the Russians, and the Spaniards – it was Russians, and the Spaniards – it was because he, in turn, used tried-and-because he, in turn, used tried-and-true strategies against enemies who true strategies against enemies who thought afresh, who were developing thought afresh, who were developing strategies not of the last war but of the strategies not of the last war but of the next.next.

24

The Nature of Global The Nature of Global CompetitionCompetition

The Advantages of International Operations

The Disadvantages of International Operations

25

AdvantagesAdvantages- - Foreign operations can absorb excess Foreign operations can absorb excess capacity, reduce unit costs, and spread capacity, reduce unit costs, and spread economic risks over a wider number of economic risks over a wider number of markets.markets.- Foreign operations can allow firms to - Foreign operations can allow firms to establish low-cost production facilities in establish low-cost production facilities in locations close to raw materials and/or locations close to raw materials and/or

cheap labor.cheap labor.

26

-

Contd…Contd…-Competitors in foreign markets may not -Competitors in foreign markets may not exist, or competition may be less intense exist, or competition may be less intense than in domestic markets.than in domestic markets.- Foreign operations may result in reduced - Foreign operations may result in reduced tariffs, lower taxes, and favorable political tariffs, lower taxes, and favorable political treatment in other countries.treatment in other countries.- Joint ventures can enable firms to learn - Joint ventures can enable firms to learn the technology, culture, and business the technology, culture, and business practices of other people and to make practices of other people and to make contacts with potential customers, contacts with potential customers, suppliers, creditors, and distributors in suppliers, creditors, and distributors in foreign countries.foreign countries.

27

Contd….Contd….

- Many foreign governments and - Many foreign governments and countries offer varied incentives to countries offer varied incentives to encourage foreign investment in encourage foreign investment in specific locations.specific locations.- Economies of scale can be achieved - Economies of scale can be achieved from operation in global rather than from operation in global rather than solely domestic markets. Larger-scale solely domestic markets. Larger-scale production and better efficiencies allow production and better efficiencies allow higher sales volumes and lower price higher sales volumes and lower price offerings.offerings.

28

DisadvantagesDisadvantages- Firms confront different and often little-- Firms confront different and often little-understood social, cultural demographic, understood social, cultural demographic, environmental, political, governmental, environmental, political, governmental, legal, technological, economic and legal, technological, economic and competitive forces when doing business competitive forces when doing business internationally. These forces can make internationally. These forces can make communication difficult between the parent communication difficult between the parent firm and subsidiaries.firm and subsidiaries.

29

Contd…Contd…- Weaknesses of competitors in - Weaknesses of competitors in foreign lands are often overestimated, foreign lands are often overestimated, and strengths are often and strengths are often underestimated. Keeping informed underestimated. Keeping informed about the number and nature of about the number and nature of competitors is more difficult when competitors is more difficult when doing business internationally.doing business internationally.- Language, culture and value systems - Language, culture and value systems differ among countries, and this can differ among countries, and this can create barriers to communication and create barriers to communication and problems managing people.problems managing people.

30

Contd…Contd…- Gaining an understanding of regional - Gaining an understanding of regional organizations such as the European organizations such as the European Economic Community, the Latin Economic Community, the Latin American Free Trade Area, the American Free Trade Area, the International Bank for Reconstruction International Bank for Reconstruction and Development, and the and Development, and the International Finance Corporation is International Finance Corporation is difficult but is often required in doing difficult but is often required in doing business internationally.business internationally.

31

Contd….Contd….- Dealing with two or more monetary - Dealing with two or more monetary systems can complicate international systems can complicate international business operations.business operations.- The availability, depth and reliability - The availability, depth and reliability of economic and marketing information of economic and marketing information in different countries vary extensively, in different countries vary extensively, as do industrial structures, business as do industrial structures, business practices, and the number and nature practices, and the number and nature of regional organizations.of regional organizations.

32

KEY TERMS AND CONCEPTSKEY TERMS AND CONCEPTS

Annual Objectives Business Ethics Code of Business

Ethics Empowerment Environmental

Scanning Externational

opportunities

External Threats Host Country Internal Strengths Internal Weaknesses International Firms Intuition Long-range Planning Long-term

Objectives

33

Contd….Contd…. Mission Statements Multinational

Corporations Policies Strategic Management Strategic-

Management Model Strategic-

Management Process

Strategies Strategists Strategy Evaluation Strategy Formulation Strategy

Implementation Vision Statement