Learning Objectives  Recognize and understand the components of strategic management  Understand three important theoretical foundations upon which strategic management is based  Differentiate between the strategic planning process and strategic thinking  Understand why globalization is such an important trend in strategic management

Definition of Strategic Management  Strategic management is a process through which: Organizations analyze and learn from their internal and external environments, Organizations analyze and learn from their internal and external environments, Establish strategic direction, Establish strategic direction, Create strategies that are intended to move the organization in that direction, and Create strategies that are intended to move the organization in that direction, and Implement those strategies Implement those strategies  All in an effort to satisfy key stakeholders

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

A Typical Stakeholder Map The Organization The Organization Owners/Board of Directors ManagersEmployees FinancialIntermediaries Government Agencies and Administrators LocalCommunities Competitors Suppliers Customers ActivistGroups Unions The Media

Three Perspectives on Strategic Management  Traditional Perspective  Resource-based View  Stakeholder View Table 1.1, page 6

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

Resource-based View  Consider the firm as a bundle of resources; firms can gain competitive advantage through possessing superior resources

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

Three Perspectives on Strategic Management  Traditional Perspective Origin Origin Economics, other business disciplines, and consulting firmsEconomics, other business disciplines, and consulting firms View of Firm View of Firm An economic entityAn economic entity Approach to Strategy Formulation Approach to Strategy Formulation Situation analysis of internal and external environments leading to formulation of mission and strategiesSituation analysis of internal and external environments leading to formulation of mission and strategies Source of Competitive Advantage Source of Competitive Advantage Best adapting the organization to its environment by taking advantage of strengths and opportunities and overcoming weaknesses and threatsBest adapting the organization to its environment by taking advantage of strengths and opportunities and overcoming weaknesses and threats

Traditional Strategic Management Process Strategic Direction (mission & goals) Strategy Formulation (take advantage of strengths/overcome weaknesses & threats) Strategy Implementation (development & execution of implementation plans) Situation Analysis (external environment)

Strategy Fundamentals  Traditional View Environmental determinism (the best strategy is determined by the environment) Environmental determinism (the best strategy is determined by the environment) Firms should adapt to the environment Firms should adapt to the environment Strategy is deliberate (intended) Strategy is deliberate (intended)  Contemporary View Enactment Enactment (firms can influence their environments) A firm should pursue actions to make the environment more hospitable emerges Strategy emerges from a stream of decisions as firms learn

Three Perspectives on Strategic Management  Resource-based View Origin Origin Economics, distinctive competencies and general management capabilityEconomics, distinctive competencies and general management capability View of Firm View of Firm A collection of resources, skills and abilitiesA collection of resources, skills and abilities Approach to Strategy Formulation Approach to Strategy Formulation Analysis of organizational resources, skills and abilities. Acquisition of superior resources, skills and abilitiesAnalysis of organizational resources, skills and abilities. Acquisition of superior resources, skills and abilities Source of Competitive Advantage Source of Competitive Advantage Possession of resources skills and abilities that are valuable, rare and difficult to imitate by competitorsPossession of resources skills and abilities that are valuable, rare and difficult to imitate by competitors

The Organization as a Bundle of Resources Organizational OrganizationalKnowledge and Learning General Organizational Resources 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 Training of Managers and EmployeesSkills, Background and Training of Managers and Employees Organization StructureOrganization Structure Financial Resources Internal and External Sources of FinancingInternal and External Sources of Financing Financial StrengthFinancial Strength

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

Three Perspectives on Strategic Management  Stakeholder View Origin Origin Business ethics and social responsibilityBusiness ethics and social responsibility View of Firm View of Firm A network of relationships among the firm and its stakeholdersA network of relationships among the firm and its stakeholders Approach to Strategy Formulation Approach to Strategy Formulation Analysis of the economic power, political influence, rights and demands of various stakeholdersAnalysis of the economic power, political influence, rights and demands of various stakeholders Source of Competitive Advantage Source of Competitive Advantage Superior linkages with stakeholders leading to trust, goodwill, reduced uncertainty, improved business dealings and ultimately higher firm performanceSuperior linkages with stakeholders leading to trust, goodwill, reduced uncertainty, improved business dealings and ultimately higher firm performance

A Typical Stakeholder Map The Organization The Organization Owners/Board of Directors ManagersEmployees FinancialIntermediaries Government Agencies and Administrators LocalCommunities Competitors SuppliersCustomers ActivistGroups Unions The Media

Can External Stakeholders Be Managed? Traditionally, at least in U.S., management theory has focused on internal (e.g., employees) rather than external stakeholders

Can External Stakeholders Be Managed?  Internal Stakeholder Management Nature of Relationship Nature of Relationship ContractualContractual Physical Location Physical Location Predominantly inside organization structure, sometimes geographically diversePredominantly inside organization structure, sometimes geographically diverse Motivation to Perform Motivation to Perform Regular payments, retention, bonuses, common purpose, persuasionRegular payments, retention, bonuses, common purpose, persuasion Direct Control Direct Control Schedules, plans, sometimes direct supervisionSchedules, plans, sometimes direct supervision  External Stakeholder Management Nature of Relationship Contractual, legal or informal Physical Location Predominantly outside organizational structure; sometimes included Motivation to Perform Regular payments, retention, incentives, bonuses, common purpose, persuasion Direct Control Schedules, plans, less often direct supervision

Can External Stakeholders Be Managed?  Internal Stakeholder Management Communication Communication , face-to-face, telephone, memos, directives, policies , face-to-face, telephone, memos, directives, policies Involvement in Organizational Decisions Involvement in Organizational Decisions Employee involvement varies from organization to organization, but it is increasingEmployee involvement varies from organization to organization, but it is increasing Importance of Trust Importance of Trust HighHigh  External Stakeholder Management Communication , face-to-face, telephone, memos, directives, policies Involvement in Organizational Decisions External stakeholder involvement varies from organization to organization, but it is increasing Importance of Trust High

Trustworthy Partnering Behavior Global Competition Global Competition Technological Complexity Complexity OrganizationalInterdependence Need for Trustworthy Partnering Behavior TrustworthyBehavior Behavior that Behavior that Violates Trust and Fairness Good Reputation Committed Effort by Stakeholders Stakeholders Eager to Conduct Business Poor Reputation Stakeholders Avoid Transactions Stakeholders Not Committed Legal Suits, Cancellations, Boycotts, etc.

A Combined Perspective of Strategic Management  Process Firms conduct external and internal analysis (situation analysis), which include analysis of stakeholders. On the basis of information obtained, they create strategic direction, strategies, tactics for implementing strategies and control systems Firms conduct external and internal analysis (situation analysis), which include analysis of stakeholders. On the basis of information obtained, they create strategic direction, strategies, tactics for implementing strategies and control systems  Origin Traditional, resource-based and stakeholder perspectives Traditional, resource-based and stakeholder perspectives  Adaptation vs. Enactment Influence the environment when it is economically feasible to do so. Take a proactive stance with regard to managing external stakeholders. Monitor, forecast and adapt to environmental forces that are difficult or costly to influence. Influence the environment when it is economically feasible to do so. Take a proactive stance with regard to managing external stakeholders. Monitor, forecast and adapt to environmental forces that are difficult or costly to influence.

A Combined Perspective of Strategic Management  Deliberate vs. Emergent Firms should be involved in deliberate strategy-creating processes. However, they should learn from past decisions and be willing to try new things and change strategic course Firms should be involved in deliberate strategy-creating processes. However, they should learn from past decisions and be willing to try new things and change strategic course  Source of Competitive Advantage superior resources, including knowledge-based resources, superior strategies for managing those resources and/or superior relationships with internal or external stakeholders (which are another type of resource) superior resources, including knowledge-based resources, superior strategies for managing those resources and/or superior relationships with internal or external stakeholders (which are another type of resource)  Creation of Strategic Alternatives Develop strategies to take advantage of strengths and opportunities or overcome weaknesses or threats. Develop strategies to take advantage of strengths and opportunities or overcome weaknesses or threats.

The Strategic Management Process EstablishStrategicDirection (Ch. 4) Formulate Strategies Business-Unit (Ch. 5) Entrepreneurship (Ch. 6) Corporate-Level (Ch. 7) Implement Strategies & Establish Controls (Chs. 8 & 9) Analyze the Environment, Stakeholders and Organizational Resources (Chs. 2 & 3) Situation Analysis

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

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

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

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

Strategy Formulation in a Multi- business Organization Entire Corporation (Corporate Level: Domain Definition) Business 2 (Business Level: Domain Direction/Navigation) Business 1 (Business Level: Domain Direction/Navigation) Marketing Finance Operations Research Human Resources (Functional Level: Implementation and Execution)

Why Go Global  More favorable climate for foreign business Trade barriers falling Trade barriers falling Newly industrializing countries Newly industrializing countries Worldwide shift towards market economies Worldwide shift towards market economies Easier to exchange capital in foreign markets Easier to exchange capital in foreign markets Communication systems are worldwide Communication systems are worldwide English universally spoken English universally spoken Technical standards universal Technical standards universal  Domestic markets saturated  Sometimes foreign markets more profitable  Acquire state-of-the-art resources  Lower cost for goods and services  Acquire technical knowledge

Strategic Planning Process vs. Strategic Thinking  The strategic planning process is often rigid and unimaginative, with detailed instructions pertaining to every aspect of the process  Strategic thinking leads to creative solutions and new ideas, more flexible.  The best firms use both!

Elements of Strategic Thinking  Intent Focused Strategic intent--a managerial vision of where the firm is going Strategic intent--a managerial vision of where the firm is going  Comprehensive A “systems” perspective. Envisions the firm as a part of a larger system of value creation. A “systems” perspective. Envisions the firm as a part of a larger system of value creation.  Opportunistic Seizes unanticipated opportunities Seizes unanticipated opportunities  Long-term Oriented Looks several years into the future at what the firm will become Looks several years into the future at what the firm will become  Built on Past and Present learns from the past and builds on a foundation of the realities of the present learns from the past and builds on a foundation of the realities of the present  Hypothesis Driven Creative ideas are then critically evaluated. Takes risks Creative ideas are then critically evaluated. Takes risks

Major Concepts in Chapter 1   The strategic management process involves analysis of the environment and organization, creation of strategic direction, strategy formulation, strategy implementation and strategic control   Strategic thinking is a creative process that should be encouraged   The strategic management model used in this book is built on three perspectives: traditional, resource-based and stakeholder. These perspectives complement each other.

Major Concepts in Chapter 1  Organizations should learn from and adapt to aspects of their environment that would be difficult or too expensive to change, but can influence (enact) other aspects of their environments  Strategy is part deliberate and part emergent  Superior organizational resources lead to superior organizational performance  Organizations sit at the center of a network of stakeholders. Effective stakeholder management can lead to acquisition of superior resources and other positive outcomes

Major Concepts in Chapter 1  Trustworthy firm behavior leads to positive outcomes  Globalization continues to increase as foreign environments become more hospitable to investment and organizations search for world- class opportunities and resources  Strategic thinking involves intuition and creativity. It is intent focused, comprehensive, opportunistic, long-term oriented, built on past and present, and hypothesis driven. Organizations should encourage this kind of thinking.