The strategic management process

Summary of lecture Introduction Whose responsibility is it Why it matters Definitions Business mission Strategic Objectives What is Strategy? Formulating Strategy Primary Determinants of Strategy

introduction Investors stake there money into a firm in order to earn a return on their investments. Returns are often measured in terms of accounting figures, such as return on assets, return on equity, or return on sales. Alternatively, returns can be measured on the basis of stock market returns, such as monthly returns. In smaller, new venture firms, returns are sometimes measured in terms of the amount and speed of growth. Firms without a competitive advantage or that are not competing in an attractive industry earn, at best, average returns. Average returns are returns equal to those an investor expects to earn from other investments with a similar amount of risk.

Whose responsibility is it? And why it matters The investors give the responsibility to the directors and subsequently managers of a firm to earn a return on their investment. In this regard, the management have to come up with a strategy/strategies to keep the firm competitive to meet the expectations of the investors. Firms without a competitive advantage or that are not competing in an attractive industry earn, at best, average returns. Inability to earn at least average returns results first in decline and, eventually, failure. Failure occurs because investors withdraw their investments from those firms earning less-than-average returns. Firms with a competitive advantage will aim to earn Above – Average Returns.

definitions COMPETITIVE ADVANTAGE AVERAGE RETURNS ABOVE AVERAGE RETURN returns equal to those an investor expects to earn from other investments with a similar amount of risk. ABOVE AVERAGE RETURN returns in excess of what an investor expects to earn from other investments with a similar amount of risk. RISK Investor’s uncertainty about the economic gains or losses that will result from a particular investment. COMPETITIVE ADVANTAGE This is when the firm implements a strategy competitors are unable to duplicate or find too costly to try to imitate.

What is strategic management? Most firms use the strategic management process as the foundation for the commitments, decisions, and actions they will take when pursuing Strategic Competitiveness and Above-Average terms. Strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating Strategy. A Strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a Competitive Advantage. When choosing a strategy, firms make choices among competing alternatives as the pathway for deciding how they will pursue Strategic Competitiveness. The chosen strategy indicates what the firm will do as well as what the firm will not do.

Strategic management The term strategic management underlines the importance of managers with regard to strategy as strategies do not happen just by themselves. Strategy involves people especially managers who decide and implement strategy. Therefore, Strategic Management includes understanding the Strategic Position of an organization, Strategic Choices for the future and managing Strategy in Action.

Strategic management process The Strategic Management Process is the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above- average returns. The firm’s first step in the process is to analyze its External Environment and Internal Organization to determine its resources, capabilities, and core competencies - the sources of its “strategic inputs.” With this information, the firm develops its Vision and Mission and formulates one or more strategies.

Strategic Management process The External Environment Vision Mission Inputs The Internal Organization Strategy Formulation Strategy Implementation Business-Level Strategy Competitive Rivalry and Competitive Dynamics Corporate-Level Strategy Corporate Governance Organizational Structure and Controls Actions Strategic Leadership Cooperative Strategy Strategic Entrepreneurship Merger and Acquisition Strategies International Strategy Strategic Competitiveness Above – Average Returns Outcomes Feedback

vision A vision or strategic intent is the desired future state of the organization. It is an aspiration around which a strategist, perhaps chief executive, might seek to focus the attention and energies of members of the organization. Or A vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately achieve. It is also important to note that vision statements reflect a firm’s values and aspirations and are intended to capture the heart and mind of each employee and, hopefully, many of its other stakeholders. A vision statement tends to be relatively short and concise, making it easily remembered. Examples of vision statements include the following: To be the leading supplier of mining equipment in Zambia. To be a world class provider of tuition to under graduate and post graduate students.

Mission A mission is a general expression of the overall purpose of the organization, which ideally, is in line with the values and expectations of major stake-holders and concerned with the scope and boundaries of the organization. It answers the challenging question: What Business Are We In? A mission should establish a firm’s individuality and should be inspiring and relevant to all stakeholders. Together, vision and mission provide the foundation the firm needs to choose and implement one or more strategies. Even though the final responsibility for forming the firm’s mission rests with the CEO, the CEO and other top-level managers tend to involve a larger number of people in forming the mission. Examples of mission statements include the following: To provide cost effective mining solutions, products, and services that exceed the expectations of our customers.

Strategy terms Term Definition A personal example Mission Overriding purpose in line with the values or expectations of stakeholders Be healthy and fit Vision or Strategic intent Desired future state: the aspiration of the organization To run the London Marathon Goal General statement of aim or purpose Lose weight and strengthen muscles Objective Quantification (if possible) or more precise statement of the goal Lose 5 kilos by 1 September and run marathon next year Strategic capability Resources, activities and processes. Some will be unique and provide ‘competitive advantage’ Proximity to a fitness centre, a successful diet Strategies Long-term direction Exercise regularly, compete in marathons locally, stick to appropriate diet Business model How product, service and information ‘flow’ between participating parties Associate with a collaborative network (e.g. join a running club) Control The monitoring of action steps to: Assess effectiveness of strategies and actions Modify as necessary strategies and/or actions Monitor weight, kilometres run and measure times: if possible satisfactory, do nothing; if not, consider other strategies and actions