1 1 The Strategic Management Process

2 Why do some organizations succeed while others fail? Strategy  An action managers take to achieve one or more of an organization’s goals Strategic management process  The process by which managers choose a set of strategies that will allow a company to achieve superior performance

3 Superior Performance and Competitive Advantage Profitability  A measure of a company’s return on its invested capital Superior performance  One company’s profitability relative to that of other companies in the same or similar business or industry

4 Profitability Maximizing returns to shareholders Importance of balancing short-term returns with long-term profitability Pressures to maximize short-term profitability may result in unethical behavior

5 Firm-Specific Performance and Profitability Competitive advantage  A firm’s profitability is greater than the average profitability for all firms in its industry Sustained competitive advantage  A firm maintains competitive advantage for a number of years Business model  Management’s model of how strategy will allow the company to gain competitive advantage and achieve superior profitability

6 Levels of Strategic Management

7 Main Components of the Strategic Planning Process (This will be on the Exam)

8 Mission Statement A description or declaration of why a company is in operation Provides the framework or context within which strategies are formulated Has 3 main components :  Mission or vision  Values or guiding standards that drive and shape the actions and behavior of employees  Major goals or objectives

9 The Mission or Vision What the company is trying to achieve over the medium to long term The Boeing Company in 2016:  “People working together as a global enterprise for aerospace leadership” Microsoft:  “To empower people through great software, any time, any place, on any device”

10 Abell’s Framework for Defining the Business Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7.

11 Values How managers and employees should conduct themselves Organizational culture  The set of values, norms, and standards that control how employees work to achieve an organization’s mission and goals  Often seen as a source of competitive advantage In high-performing organizations, values respect the interests of key organizational stakeholders.

12 Strategy as an Emergent Process Strategy making in an unpredictable world Strategy making by lower-level managers Serendipity (i.e., fortunate good luck) and strategy

13 Intended and Emergent Strategies Intended strategies  Strategies an organization plans to put into action Emergent strategies  Unplanned strategies Realized strategy  The product of whatever intended strategies are actually put into action and of any emergent strategies

14 Emergent and Deliberate Strategies Source: Adapted from H. Mintzberg and A. McGugh, Administrative Science Quarterly, Vol. 30. No. 2, June 1985.

15 Strategic Planning in Practice Scenario Planning Involving Functional Managers  Avoiding the ivory tower approach  Perceiving procedural justice Strategic Intent  Avoiding the fit model, which focuses too much on the current state  Setting ambitious goals that stretch a company and finding ways to build to attain those goals

16 Strategic Leadership Vision, eloquence, and consistency Commitment Being well informed Willingness to delegate and empower The astute use of power Emotional intelligence

17 Emotional Intelligence Self-awareness Self-regulation Motivation Empathy Social skills

18 Challenges to Strategic Decision Making Cognitive biases  Prior hypothesis bias  Escalating commitment  Reasoning by analogy  Representativeness  Illusion of Control Hubris hypothesis Groupthink

19 Processes for Improving Decision Making