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