2 Learning Objectives Explain the concept of strategic management Describe how strategic decisions differ from other decisions that managers makeName the benefits and risks of a participative approach to strategic decision makingUnderstand the types of strategic decisions for which different managers are responsibleDescribe a comprehensive model of strategic decision makingAppreciate the importance of strategic management as a processGive examples of strategic decisions that companies have recently made
3 The Nature and Value of Strategic Management The set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives
4 Nine Critical Tasks of Strategic Management -- Tasks 1-5: Formulate the company’s missionConduct an internal analysisAssess the external environment – competitive and general contextsAnalyze the company’s options by matching its resources with the external environmentIdentify the most desirable options in light of the mission
5 Nine Critical Tasks of Strategic Management -- Tasks 6-9: Select a set of long-term objectives and grand strategies that will achieve the most desirable optionsDevelop annual objectives and short-term strategies that are compatible with long-term objectives and grand strategiesImplement the strategic choicesEvaluate the success of the strategic process for future decision making
6 What is Strategy? Large-scale, future-oriented plan Used to interact within competitive environment to achieve company goalsProvides a framework for managerial decisionsReflects a company’s awareness of the main elements of competition
7 Dimensions of Strategic Decisions Strategic issues require top-management team decisionsStrategic issues require large amounts of the firm’s resourcesStrategic issues often affect the firm’s long-term prosperityStrategic issues are future orientedStrategic issues usually have multifunctional or multibusiness consequencesStrategic issues require considering the firm’s external environment
8 Dimensions of Strategic Decisions (in detail) Strategic issues require top-management team decisionsStrategic decisions overarch several areas of a firm’s operationsUsually only top management has the perspective needed to understand their broad implicationsUsually only top managers have the power to authorize necessary resource allocations
9 Dimensions of Strategic Decisions (contd.) Strategic issues require large amounts of the firm’s resourcesThey involve substantial allocations of people, physical assets, and moneyStrategic decisions commit the firm to actions over an extended periodIn highly competitive firms, achieving and maintaining customer satisfaction frequently involves commitment from every facet of the firm
10 Dimensions of Strategic Decisions (contd.) Strategic issues often affect the firm’s long-term prosperityStrategic decisions commit the firm for a long time, typically 5 years; however the impact lasts much longerOnce a firm has committed itself to a strategy, its image and competitive advantages are usually tied to that strategyFirms become known for what they do and where they compete. Shifting away from that can jeopardize their previous gains.
11 Dimensions of Strategic Decisions (contd.) Strategic issues are future-orientedThey are based on what managers forecast, rather than what they knowEmphasis is on the development of solid projections that will enable a firm to seek the most promising strategic optionsA firm will succeed only if it takes a proactive (anticipatory) stance toward change
12 Dimensions of Strategic Decisions (contd.) Strategic issues usually have multifunctional or multibusiness consequences.Strategic decisions have complex implications for most areas of the firmDecisions about customer mix, competitive emphasis, or organizational structure involve a number of the firm’s SBUs, divisions, or program units
13 Dimensions of Strategic Decisions (contd.) Strategic issues require considering the firm’s external environmentAll businesses exist in an open system. They affect and are affected by external conditions that are largely beyond their controlSuccessful positioning requires that strategic managers look beyond operations and consider what relevant others are likely to do
14 Levels of StrategyCorporate level: board of directors, CEO & administration [Highest]Business level: business and corporate managers [Middle]Functional level: Product, geographic, and functional area managers [Lowest]
15 Ex. 1.2 Alternative Strategic Management Structures
17 Characteristics of Strategic Management Decisions: Corporate Often carry greater risk, cost, and profit potentialGreater need for flexibilityLonger time horizonsChoice of businesses, dividend policies, sources of long-term financing, and priorities for growth
18 Characteristics of Strategic Management Decisions: Functional Implement the overall strategy formulated at the corporate and business levelsInvolve action-oriented operational issuesRelatively short range and low riskModest costs: depend upon available resourcesRelatively concrete and quantifiable
19 Characteristics of Strategic Management Decisions: Business/SBU Help bridge decisions at the corporate and functional levelsLess costly, risky, and potentially profitable than corporate-level decisionsMore costly, risky, and potentially profitable than functional-level decisionsInclude decisions on plant location, marketing segmentation, and distribution
20 Formality in Strategic Management Formality is the degree to which participation, responsibility, authority, and discretion in decision-making are specified in strategic management
21 Forces Determining Formality Organizational SizePredominant Management StylesComplexity of EnvironmentProduction ProcessProblems in the FirmPurpose of the Planning SystemStage of Firm’s Development
22 Three Modes of Formality Entrepreneurial Mode – most small firmsPlanning Mode – most large firmsAdaptive Mode – most medium size firms
23 Entrepreneurial ModeThe informal, intuitive, and limited approach to strategic management associated with owner-managers of smaller firms.
24 Planning ModeThe strategic formality associated with large firms that operate under a comprehensive, formal planning system.
25 Adaptive ModeThe strategic formality associated with medium-sized firms that emphasize the incremental modification of existing competitive approaches.
26 Strategy MakersIdeal strategic management planning process includes decision makers from all three levelsTop managers must give final approvalStrategic decisions coincide with managers’ responsibilities
27 Strategy Makers: The CEO A firm’s CEO plays a prominent role in strategic planningThe CEO’s principal duty is giving long-term direction to the firmThe CEO bears ultimate responsibility for the firm’s success and strategic successCEOs are typically strong-willed,company-oriented individuals
28 Benefits of a Participative Approach to Strategic Management Managers at all levels interact in planning and implementing strategySimilar to participative decision makingAssessing strategy formulation requires looking at nonfinancial evaluations as well as financial onesPromoting positive behavioral consequences enables achievement of financial goals
29 The Strategic Management Process Businesses vary in formulation and other processesThe basic components of the models used to analyze strategic management are similarStrategic management is a process—a flow of information through interrelated stages of analysis toward the achievement of some goal
31 Components of the Strategic Management Model Company MissionExternal AnalysisLong-Term ObjectivesShort-Term ObjectivesPolicies Empowering ActionStrategic Control & Continuous ImprovementInternal AnalysisStrategic Analysis & ChoiceGeneric & Grand StrategiesAction Plans & Functional TacticsRestructuring, Reengineering & Refocusing
32 Strategic Management Terms Defined Company Mission: The unique purpose that sets a company apart from others of its type and identifies the scope of its operations.Long-term Objectives: The results than an organization seeks to achieve over a multiyear period.
33 Strategic Management Terms Defined Generic Strategies: Fundamental philosophical options for the design of strategies.Grand Strategies: The means by which objectives are achieved.
34 Strategic Management Terms Defined Short-term Objectives: Desired results that provide specific guidance for action during a period of one year or less.Functional Tactics: Short-term, narrow scoped plans that detail the “means” or activities that a company will use to achieve short-term objectives.Policies: Predetermined decisions that substitute for managerial discretion in repetitive decision making.
35 Strategic Management Terms Defined Strategic Control: Tracking a strategy as it is being implemented, detecting problems or changes in its underlying premises, and making necessary adjustments.Continuous Improvement: A form of strategic control in which managers are encouraged to be proactive in improving all operations of the firm.
36 StakeholdersInfluential people who are vitally interested in the actions of the business