Module 1 The Nature of Strategic Management

Strategic Management –Defined Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives

Purpose of Strategic Management To exploit and create new and different opportunities for tomorrow

Strategic Management In essence, the strategic plan is a company’s game plan

3 Stages of the Strategic Management Process Strategy formulation Strategy implementation Strategy evaluation

Strategy Formulation Vision & Mission External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection

Issues in Strategy Formulation Businesses to enter Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover

Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation

Strategy Implementation Steps Developing a strategy-supportive culture Creating an effective organizational structure Redirecting marketing efforts Preparing budgets Developing and utilizing information systems Linking employee compensation to organizational performance

Issues in Strategy Implementation Action Stage of Strategic Management Mobilization of employees & managers Most difficult stage Interpersonal skills critical

Performance Measurement Strategy Evaluation Internal Review External Review Performance Measurement Corrective Action

Prime Task of Strategic Management Peter Drucker: Think through the overall mission of a business. Ask the key question: “What is our Business?”

Integrating Intuition & Analysis The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty

Integrating Intuition & Analysis Intuition is based on: Past experiences Judgment Feelings Intuition is useful for decision making in conditions of: Great uncertainty Little precedent Highly interrelated variables Several plausible alternatives

Involve management at all levels Influence all analyses Integrating Intuition & Analysis Intuition & Judgment Involve management at all levels Influence all analyses

Adapting to Change Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed

Key Terms in Strategic Management Competitive advantage Strategists Vision and mission statements External opportunities and threats Internal strengths and weaknesses Long-term objectives Strategies Annual objectives Policies

Anything that a firm does especially well compared to rival firms Strategic Management is Gaining and Maintaining Competitive Advantage Anything that a firm does especially well compared to rival firms

Achieving Sustained Competitive Advantage 1. Continually adapting to changes in external trends and events and internal capabilities, competencies, and resources 2. Effectively formulating, implementing, and evaluating strategies that capitalize on those factors

Strategists Gather Information Analyze Information Organize Information

Vision and Mission Statements Vision Statement – What do we want to become? Mission Statement – What is our business?

External Opportunities and Threats Analysis of Trends Economic Social Cultural Demographic/Environmental Political, Legal, Governmental Technological Competitors

External Opportunities External Opportunities and Threats Basic Tenet of Strategic Management Take advantage of External Opportunities Strategy Formulation Avoid/minimize impact of External Threats

Internal Strengths and Weaknesses Controllable activities performed especially well or poorly Determined relative to competitors

Internal Strengths and Weaknesses Typically located in functional areas of the firm Management Marketing Finance/Accounting Production/Operations Research & Development Management Information Systems

Internal Strengths and Weaknesses Assessing the Internal Environment Ratios Internal Factors Performance Measures Industry Averages Survey Data

Long-Term Objectives Specific results that an organization seeks to achieve in pursuing its basic mission Long-term means more than one year

Long-Term Objectives Essential for ensuring the firm’s success Provide direction Aid in evaluation Create synergy Reveal priorities Focus coordination Provide basis for planning, organizing, motivating, and controlling

Strategies Means by which long-term objectives are achieved

Strategies Examples Geographic expansion Diversification Acquisition Product development Market penetration Retrenchment Divestiture Liquidation Joint venture

Sample Strategies Table 1-1 Best Buy Levi Strauss New York Times Company

Annual Objectives Short-term milestones that firms must achieve to reach long-term objectives

Policies Means by which annual objectives will be achieved

Strategic Management Model Strategic Management Process Dynamic & continuous More formal in larger organizations

Strategic Management Communication is a key to successful strategic management

Benefits of Strategic Management

Benefits of Strategic Management Nonfinancial Benefits Enhanced awareness of threats Improved understanding of competitors’ strategies Increased employee productivity Reduced resistance to change Clearer understanding of performance-reward relationship Enhanced problem-prevention capabilities

Why Some Firms Do No Strategic Planning Lack of knowledge of strategic planning Poor reward structures Fire fighting Waste of time Too expensive Laziness Content with success

Why Some Firms Do No Strategic Planning (continued) Fear of failure Overconfidence Prior bad experience Self-interest Fear of the unknown Honest difference of opinion Suspicion

Pitfalls in Strategic Planning Strategic planning is an involved, intricate, and complex process that takes an organization into uncharted territory

Effective Strategic Planning is: A people process more than a paper process A learning process Words supported by numbers Simple and nonroutine Varying assignments, team membership, meeting formats, and planning calendars Challenging assumptions underlying corporate strategy

Effective Strategic Planning continued Welcomes bad news Requires open-mindedness and a spirit of inquiry Is not a bureaucratic mechanism Is not ritualistic or stilted Is not too formal, predictable, or rigid Does not contain jargon or arcane language

Effective Strategic Planning continued Is not a formal system for control Does not disregard qualitative information Is not controlled by “technicians” Does not pursue too many strategies at once Continually strengthens the “good ethics is good business” policy

Comparing Business and Military Strategy Strategic planning started in the military Similarity Both business and military organizations must adapt to change and constantly improve Difference Business strategy assumes competition Military strategy assumes conflict