The Nature of Strategic Management

The Nature of Strategic Management Objectives

Describe the Strategic-management process Explain the need for integrating analysis and intuition in strategic management Define and give examples of key terms in SM Discuss the nature of strategy formulation, implementation and evaluation activities Describe the benefits of good SM Discuss the relevance of Sun Tzus The Art of War to SM Ch 1 -2 Discuss how a firm may achieve sustained

Strategic Management Defined

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

To exploit and create new and different opportunities for tomorrow; long-range planning.

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Strategic Management
In essence, the strategic plan is a companys game plan. A strategic plan results from tough managerial choices among numerous good alternatives, and its signals commitment to specific markets, policies, procedures, and operations in lieu of other, LESS DESIRABLE course of action Ch 1 -5

3 Stages of the Strategic Management Process

Strategy formulation Strategy implementation Strategy evaluation

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Strategy Formulation Includes

Developing- Vision & Mission Identifying- External Opportunities & Threats Determining- Internal Strengths & Weaknesses Establishing -Long-Term Objectives Generating -Alternative Strategies Choosing- Particular Strategy Selection

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Issues in Strategy Formulation

What What Businesses Businesses to to enter enter What What Businesses Businesses to to abandon abandon How How to to Allocation Allocation of of resources resources Whether Whether to to Expansion Expansion or or diversification diversification Whether Whether to to enter enter International International markets markets Whether Whether to to Mergers Mergers or or joint joint ventures ventures How How to to Avoid Avoid hostile hostile takeover takeover

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Strategy Implementation requires

Establish Annual Objectives Devise Policies Motivate Employee Allocate Resource

So that formulated strategies can be Ch 1 -9 executed

Strategy Implementation Steps

Developing a strategy-supportive culture Creating an effective organizational structure Redirecting marketing efforts Preparing budgets Developing and utilizing information systems -10 Linking employee compensationCh 1 to

Issues in Strategy Implementation

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

Internal & External Review Performance Measurement Corrective Action

Evaluation Very essential because success today is not guarantee of success tomorrow
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Prime Task of Strategic Management

Strategy formulation, implantation, and evaluation activities occur at three hierarchical levels . Peter Drucker: Think through the overall mission of a business. Ask the key question: What is our Business?
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Integrating Intuition & Analysis

The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty

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Integrating Intuition & Analysis

Past experiences Judgment Feelings Recognize that Intuition is essential to making good strategic decision.

Intuition is useful for decision making in conditions of: Great uncertainty Little precedent ( model) Highly interrelated variables Several plausible( reasonable) Ch 1 -15 alternatives

Intuitive flash of brilliance , Mr. Will Durant never felt obliged to make an engineering hunt for the fact. I believe in intuition and inspiration , I feel certain that I am right while not knowing the reason. Imagination is more important than knowledge , because knowledge is limited , whereas imagination embraces the entire world. - --Sir Einstein
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Integrating Intuition & Analysis Intuition , Judgment & analytical Approaches

Involve management at all levels

Influence all analyses

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Adapting to Change
Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. The need to adopt to change leads organization to key strategic-management question . Such as

What kind of business should we become? Are we in right field? Should we reshape our business What new competitors are entering our industry What strategy should purse How are our customer changing Ch 1 -18 Are new technologies being developed that could put

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
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Strategic Management is Gaining and Maintaining Competitive Advantage

Anything that a firm does especially well compared to rival firms. During Global Recession Ample Cash Balance, less fixed assets than rivals , Internet provide major competitive advantages. Normally competitive advantages only for certain period due to rival firms imitating and undermining that advantages, So must strive to achieve sustained competitive advantages by (a) continually adapting changeCh 1 with -20 external events and internal capabilities,

Strategists are individual who are responsible for Success and failure

Help Gather Analyze & Organize Information Track industry & competitors trend

Develop forecasting model and scenario analysis Evaluate performance , spot opportunities , identify threat and develop corrective plans

egist differ because of personal philosophies, social responsibilities, conc profitability, attitude, values, ethics, willingness to take risk etc

Vision and Mission Statements

Vision Statement
What do we want to become?

Mission Statement
What is our business? Identifies the scope of firms operations.

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External Opportunities and Threats Analysis of Trends

Economic Social Cultural Demographic/Environmental Political, Legal, Governmental Technological Competitors

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External Opportunities and Threats Basic Tenet of Strategic Management

Take Take advantage advantage of of External External Opportunities Opportunities Avoid/minimize Avoid/minimize impact impact of of External External Threats Threats
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Strategy Formulation

Internal Strengths and Weaknesses

Controllable

activities performed especially well or poorly relative to competitors ( deficiency or superiority)

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Determined

Internal Strengths and Weaknesses

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

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Internal Strengths and Weaknesses Assessing the Internal Environment

Ratios Performance Measures Industry Averages Survey Data
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Internal Factors

Long-Term Objectives

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

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Long-Term Objectives

Objectives are essential for ensuring the firms success Provide direction Aid in evaluation Create synergy Reveal priorities Focus coordination Provide basis for planning, organizing, motivating, and controlling Objectives should challenging, measurable, Ch 1 -29 consistent, reasonable, and clear.

Strategies

Means by which long-term objectives are achieved

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Strategies

Examples Geographic expansion Diversification Acquisition Product development Market penetration Retrenchment Divestiture Liquidation Joint venture
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Annual Objectives
Short-term milestones that firms must achieve to reach long-term objectives. Annual objectives should be measurable, quantitative, challenging, realistic, consistent, and prioritizes. They should establish at every layers and functions of the organization

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Policies
Means by which annual objectives will be achieved. It is the guidelines , rules, and procedures to support objectives. It establish in corporate level and apply entire organization

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Strategic Management Model

Strategic

Management Process can be best studied and applied using a model.

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Strategic Management Model

Identifying an organization vision, mission, objectives, and strategies is logical starting point for strategic management because a firms present situation and condition may preclude certain strategies and may even dictate a particular course of action.
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Strategic Management Model

Strategic

Management Process

Dynamic & continuous A change in any one components in model can necessitate a change in any or other components.

Shift in economy could represent a major a major opportunities/threats require a change in long-term objectives and strategies Failure of accomplish objectives require change in policy competitors changes in strategy could require to change in mission. So Ch 1 -37 formulation, implementation, and

Strategic Management

Communication

and feedback is a key to successful strategic management

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Benefits of Strategic Management

Proactive than Reactive in shaping future Help to formulate better strategies through use of more systematic, logical, and rational approaches. A major aim of the process is to achieve the understanding of and commitment from all managers and employees. EMPOWERMENT

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Financial Benefits Statistics showing improvement in sales , profitability, and productivity. Nonfinancial Benefits Enhanced awareness of threats Improved understanding of competitors strategies Increased employee productivity Reduced resistance to change Clearer understanding of performancereward relationship Ch 1 -40 Enhanced problem-prevention capabilities

Benefits of Strategic Management

Why Some Firms Do No Strategic Planning

Lack of knowledge of strategic planning Poor reward structures :

assume success but fail to rewards success

Fire fighting Waste of time Too expensive Laziness Content with success

Today success may feel that there is no need to Ch 1 -41 plan as they are fine today.

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

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Pitfalls in Strategic Planning

Strategic planning is an involved, intricate, and complex process that takes an organization into uncharted territory (not ready to prescription for success)

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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 Ch 1 -44 corporate strategy

Effective Strategic Planning continued

Welcomes bad news Requires open-mindedness and a spirit of inquiry Is not a bureaucratic mechanism Is not stilted Is not too formal, predictable, or rigid Does not contain jargon or arcane language
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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
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Comparing Business and Military Strategy

Strategic planning started in the military Similarity

Both business and military organizations must adapt to change and constantly improve Business strategy competition assumes
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Difference