Strategic Management Defined: Set of managerial decisions and actions that determines the long-run performance of a firm.

Strategic Decision Making Strategic Decisions Rare Consequential Directive

Initiation of Strategy New CEO External intervention Threat of change in ownership Performance gap Strategic inflection point Stimulus for change in strategy Triggering event

Key Strategic Questions Not always a formal process: Where is the organization now? (Not where do we hope it is!) If no changes are made, where will the organization be in 1 year, 2 years, 5 years, 10 years? If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?

Four Phases of Strategic Management Basic financial planning Forecast-based planning Externally-oriented planning (strategic) Strategic management

Strategic Management Benefits: Clearer sense of long term vision (strategic direction) for the firm Sharper focus on what is strategically important Improved understanding of a rapidly changing environment

Challenges to Strategic Management Electronic Commerce Use of the Internet to conduct business transactions Globalization Internationalization of markets and corporations Global (worldwide) markets rather than national markets

Global Issues European Union (EU) Economic integration of 15 member countries North American Free Trade Agreement (NAFTA) Improved trade among 3 member countries Mercado Del Cono Sur = Market of the southern cone (Mercosur) Free-trade area among Argentina, Brazil, Uruguay, and Paraguay Association of South East Asian Nations (ASEAN) Attempting to link members into a borderless economic zone

Strategic Management Process Strategic Management process is composed of: Environmental Scanning Strategic Formulation Strategic Implementation Evaluation and Control

Environmental Scanning Defined: The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm.

Environmental Scanning Identify strategic factors SWOT Analysis Strengths, Weaknesses Opportunities, Threats Internal Environment Strengths & Weaknesses Within the organization but not subject to short-run control of management External Environment Opportunities & Threats External to the organization but not subject to short-run control of management

Environment Composed of: Internal Environment External Environment Task Environment Societal Environment

Environmental Scanning

Internal Environment Composed of: Structure Culture Resources

Structure Refers to the way a firm is organized in terms of communication, authority, and workflow Basic Forms of structures: Simple structure Functional structure Divisional structure

Basic Organizational Structures: Simple and Functional I. Simple Structure II. Functional Structure Owner-Manager Workers Top Management Manufacturing Sales Finance Personnel

Basic Structures of Corporations: Divisional III. Divisional Structure* Manufacturing Finance Top Management Product Division A Product Division B *Conglomerate structure is a variant of the division structure. Sales Personnel

Internal Environment Composed of: Culture Structure Resources

Culture Refers to the pattern of beliefs, expectations, and values shared by a firm’s employees Distinct attributes of organizational culture: Cultural intensity Cultural integration

Cultural intensity Refers to the degree in which the members of each unit (department or division) in the company subscribe to the same values or norms. As a result, employees in a unit with intensive culture tend to behave the same. In general, older organizations tend to display more intense culture.

Cultural integration Refers to the degree in which units (departments and divisions) across a company tend to subscribe to the same set of values and norms. Units within a companies with integrated culture tend to be more uniformed with other units. As a results, the units in a company with an integrated culture tend to lack subcultures of their own.

Internal Environment Composed of: Resources Culture Structure

Resources Refers to the assets of the firm including physical assets, skills and knowledge within the functional areas

Environmental Scanning

Task Environment Composed of: Groups in environment that directly affect or are affected by the organization’s operations (often refer to as industry) Competition Suppliers Customers (Buyers) Other interest Groups

Industry Analysis

Environmental Scanning

Societal Environment Composed of: General forces in environment Economic Forces Sociocultural Forces Technological Forces Political-Legal Forces

Societal Environment Important Variables Economic GDP trends Interest rates Money supply Inflation rates Unemployment levels Wage/price controls Devaluation/ revaluation Energy availability and cost Disposable and discretionary income Technological Total government spending for R&D Total industry spending for R&D Focus of technological efforts Patent protection New products New developments in technology transfer from lab to marketplace Productivity improvements through automation Political-Legal Antitrust regulations Environmental protection laws Tax laws Special incentives Foreign trade regulations Attitudes toward foreign companies Laws on hiring and promotion Stability of government Sociocultural Lifestyle changes Career expectations Consumer activism Rate of family formation Growth rate of population Age distribution of population Regional shifts in population Life expectancies Birth rates Societal Environment Important Variables

Societal Environment Important Variables Economic GDP trends Interest rates Money supply Inflation rates Unemployment levels Wage/price controls Devaluation/ revaluation Energy availability and cost Disposable and discretionary income Technological Total government spending for R&D Total industry spending for R&D Focus of technological efforts Patent protection New products New developments in technology transfer from lab to marketplace Productivity improvements through automation Political-Legal Antitrust regulations Environmental protection laws Tax laws Special incentives Foreign trade regulations Attitudes toward foreign companies Laws on hiring and promotion Stability of government Sociocultural Lifestyle changes Career expectations Consumer activism Rate of family formation Growth rate of population Age distribution of population Regional shifts in population Life expectancies Birth rates Societal Environment Important Variables

Environmental Scanning

SWOT Analysis Internal Environment: External Environment: Strengths Weaknesses External Environment: Opportunities Threats

Basic Model of Strategic Management Four Basic Elements

Strategic Management Model Environmental Strategy Strategy Evaluation and Control Evaluation and Control and Control Scanning Formulation Implementation External Mission Reason for Societal existence Environment Objectives General Forces What results to Task Strategies accomplish Environment by when Plan to Industry Analysis achieve the Policies mission & Internal objectives Broad guidelines for Programs Structure decision Process Chain of Command making Activities to monitor needed to performance Culture Budgets accomplish and take Beliefs, Expectations, a plan corrective Cost of the Values action programs Procedures Resources Sequence Assets, Skills of steps Competencies, needed to Knowledge do the job Performance Feedback/Learning

SWOT Analysis Internal Environment: External Environment: Strengths Weaknesses External Environment: Opportunities Threats

Basic Model of Strategic Management Four Basic Elements

Strategy Formulation Defined: Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses. Composed of: Mission Objectives Strategies Policies

Strategy Formulation Mission Statement Purpose or reason for the organization’s existence Should include the firm’s products / services and it’s target market(s) Who we are, what we do, what we’d like to become Promotes shared expectations among employees Communicates a public image to stakeholders

Strategy Formulation Maytag Corporation Mission Statement To improve the quality of home life by designing, building, marketing, and servicing the best appliances in the world.

Strategy Formulation Objectives The end results of planned activity WHAT is to be accomplished Time in which to accomplish it (WHEN) Objectives should be quantified when possible

Strategy Formulation Goals vs. Objectives A goal is an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and/or no time criteria for completion.

Goals & Objectives Corporate goals and objectives include: Profitability (net profits) Growth (increase in total assets, etc.) Utilization of resources (ROE or ROI) Market leadership (market share)

Strategies Defined: A strategy of a corporation forms a comprehensive master plan stating HOW the corporation will achieve its mission and objectives.

Strategies 3 Types of Strategy Corporate strategy Business strategy Functional strategy

Hierarchy of Strategy Corporate Strategy Functional Strategy Business (Division Level) Strategy Functional Strategy

Corporate Strategies Corporate strategies deal with corporation’s overall direction and its management of its businesses

Corporate Strategies Corporate Strategy Growth Stability Retrenchment

Growth Strategies Concentration Diversification Horizontal integration Vertical integration Diversification Concentric diversification Conglomerate diversification Any of these four growth strategies may be though internal development or external acquisitions, mergers, or joint ventures.

Corporate Strategies Corporate Strategy Stability Growth Retrenchment

Stability Strategies Pause Proceed-with-caution No change Profit

Corporate Strategies Corporate Strategy Retrenchment Stability Growth

Retrenchment Strategies Turnaround Captive Divestment Bankruptcy Liquidation

Hierarchy of Strategy Corporate Strategy Functional Strategy Business (Division Level) Strategy Functional Strategy

Business Strategy Emphasizes on improving the competitive position of a firm’s strategic business Also referred to as competitive strategies

Porter’s Competitive Strategies Competitive Advantage: Lower cost strategy Design, produce, market more efficiently than competitors Differentiation strategy Unique and superior value in terms of product quality, features, service

Porter’s Competitive Strategies Competitive Scope: Refers to the Breadth of the company’s target market Compete head to head in large market? Focus on niche?

Porter’s Generic Competitive Strategies

Porter’s Competitive Strategies Cost Leadership: Low-cost competitive strategy Aimed at broad mass market Aggressive construction of efficient-scale facilities Cost reductions/Cost minimization

Porter’s Competitive Strategies Differentiation: Broad mass market Unique product or service Charge premiums Lower customer sensitivity to price

Porter’s Competitive Strategies Cost focus: Low cost competitive strategy Focus on particular buyer group or market Niche focused Seek cost advantage in target market

Porter’s Competitive Strategies Differentiation focus: Focus on particular group or geographic market Seek differentiation in targeted market segment Serve special needs of narrow target market

Hierarchy of Strategy Corporate Strategy Functional Strategy Business (Division Level) Strategy Functional Strategy

Functional Strategy To optimize resource productivity

Policies Defined: Broad guidelines for decision making that link the formulation of strategy with its implementation.

Strategy Implementation Programs Strategy Implementation Budgets Procedures

Programs A program is a statement of activities or tasks needed to accomplish a single-use plan

Budgets A budget is a statement of a corporation’s program in dollar terms

Procedures Procedures refer to a system of sequential steps or techniques that describe in detail how to perform a particular activity or task