Strategic Management

An Introduction to Strategy

Learning Outline
What is strategic management? Why is strategic management important? Who is involved with strategic management? Strategic management today

A definition of strategy
GoalGoal-directed decisions and actions in which capabilities and resources are matched with the opportunities and threats in the environment.

Military influences in strategy

Strategos referred to a general in command of an army The art of the general
By 450 B.C. it came to mean managerial skill By 330 B.C. it referred to the skill of employing forces to overcome positions to create a system of global governance

Carl von Clausewitz tactics (involve) the use of armed forces in the engagement, strategy (is) the use of engagements for the object of war 1838 On War

Academic influences in strategy

1911 Scientific management (Taylor) Still in place today (UPS), some consider it micromanaging HBS requires a class in Business Policy in 1912 Adam Smith s invisible hand (the market) gives way to Alfred Sloan (GM CEO from 1923-1946) concept of the visible 1923hand middle manager Chester Bernard influential book The Executive argues that managers should pay attention to strategic factors Ronald Coase s 1937 article why firms exist (Nobel Prize in economics) and Joseph Schumpter s concept of disruptive technologies written in 1942 bring in organizational economics Max Weber warns against bureaucratic organizations but sees a shift toward this way of organizing
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Recent influences in strategy

1960s (Strategy and structure; Corporate Strategy)
1963 Harvard business conference leads to SWOT analysis BCG founded in 1963 strategy boutique
Created the portfolio analysis  Stars, dogs, cash cows, question marks

1980s (Porter s 5 forces) 1990s (Resource based view of the firm)

Why is strategic management important?

Gives everyone a role Makes a difference in performance levels Provides systematic approach to uncertainties Coordinates and focuses employees
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Why Strategy?
To change, an organization needs
Burning Platform Vision Leadership Strategic Management Political Management

Strategy vs. Strategic Management

Strategy
A series of goalgoaldirected decisions and actions matching an organization s skills and resources with the opportunities and threats in its environment

Strategic management
Analyze current situation Develop appropriate strategies Put strategies into action Evaluate, modify, or change strategy
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Strategy vs. Strategic Management

Strategy involves
Organization s goals Goal-oriented Goalaction Related decisions and actions Internal strengths External opportunities and threats

Strategic management
Planning Organizing Implementing Controlling

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Basics of Strategic Management

Four aspects that set strategic management apart
Interdisciplinary
Capstone of the Business degree

External focus
Competition

Internal focus Future direction

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Strategic Management Process

Analyzing Current Situation Deciding on Strategies Putting Strategies in Action Evaluating and Changing Strategies

Situation Analysis

Strategy Formulation

Strategy Implementation

Strategy Evaluation

External Analysis Chapter 2 Chapter 3 Internal Analysis Chapter 4

Functional Chapter 5

Competitive Chapter 6

Corporate Chapter 7
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Strategic Management Process

Situation Analysis
Scanning & evaluating context Internal and External environments

Strategy formulation
Functional Competitive Corporate strategies

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Levels of strategy
Corporate
What direction are we going and what business(es) are we in or do we want to be in?

Competitive:
How are we going to compete in our chosen business(es)?

Functional
What resources and capabilities do we have to support the corporate and competitive strategies?

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Strategic Management Process

Strategy implementation
Process of putting strategies into action Consider implementation at each level

Strategy evaluation
Was the strategy effective? Close the loop

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Who does strategy?

 The Role of the Board of Directors  The Role of Top Management
 Elected representatives of the company s stockholders  Legally obligated to represent and protect stockholder s  Responsible for decisions and action of every employee  Providing effective leadership  Implement put the strategies into action and monitor performance  Evaluate do the actual evaluations and take necessary

 Other Organizational Employees

actions

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The Role of the Board of Directors

 Review and approve strategic goals and plans  Review and approve organization's financial     
standards and policies Approve an organizational philosophy Monitor organizational performance and regularly review performance results Select, evaluate, and compensate top-level topmanagers Develop management succession plans Monitor relations with shareholders and other key stakeholders
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Who is on the board of directors?

Chairman of the board
Chief Executive officer (CEO)

President
Chief Operating officer (COO)

Other C s
Chief Financial officer Chief Information officer

Inside board members Outside board members

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The Role of Top Management

Determining Organizational Purpose or Vision Establishing Appropriately Balanced Controls Exploiting and Maintaining Core Competencies

Effective Strategic Leadership

Emphasizing Ethical Decisions and Practices Developing Human Capital Creating and Sustaining Strong Organizational Culture
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Strategic Management Principle

Effective strategy-making strategybegins with a vision of where the organization needs to head!

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Elements of a Strategic Vision

Use the mission statement as a starting point Develop a strategic vision that spells out a course to pursue

Communicate the vision in a clear and exciting manner

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Characteristics of a Mission Statement

Defines current business activities Highlights boundaries of current business Conveys
Who we are, What we do, and Where we are now
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Characteristics of a Mission Statement

Company specific, not generic specific, so as to give a company its own identity A company s mission is not to make a profit ! The real mission is always What will we do to make a profit?
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Examples of Missions
Microsoft Corporation

Empower people through great software anytime, anyplace, and on any device.
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Examples of Missions
Otis Elevator Our mission is to provide any customer a means of moving people and things up, down, and sideways over short distances with higher reliability than any similar enterprise in the world.
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Examples of Mission
American Red Cross
The mission of the American Red Cross is to improve the quality of human life; to enhance self-reliance and concern for others; and to help people avoid, prepare for, and cope with emergencies.
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RitzRitz-Carlton Hotels
The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests is our highest mission. We pledge to provide the finest personal service and facilities for our guests who will always enjoy a warm, relaxed yet refined ambiance. The Ritz-Carlton experience enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests (vision)
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Characteristics of a Strategic Vision

Charts a company s future strategic course Defines the business makeup for 5 years (or more) Specifies future technologytechnologyproductproduct-customer focus
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Communicating the Vision

An exciting, inspirational vision
Challenges and motivates workforce Arouses strong sense of organizational purpose Induces employee buy-in buyGalvanizes people to live the business

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Value of a Well-Conceived WellStrategic Vision and Mission

Crystallizes long-term direction longReduces risk of rudderless decisiondecision-making Conveys organizational purpose and identity Keeps direction-related actions of lower-level directionlowermanagers on common path Helps organization prepare for the future
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Concept of Strategic Intent

A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective and concentrates its competitive actions and energies on achieving that objective!
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Lessons about change: Built to last

Understand why superior companies are better than peer companies which are better than most companies
$1 invested in stock market in 1926 yields
$420 in all other companies $960 in peer companies $6360 in superior (visionary) companies

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Who are these companies

Visionary
3M Boeing GE IBM Motorola Nordstrom P&G Sony Wal-mart WalPeer companies
Norton McDonnell Douglass Westinghouse Burroughs Zenith Melville Colgate Kenwood Ames

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So what did they find?

Great companies had BHAG
Big Hairy Audacious Goals What ever your values are stick with it Deal with the AND, not the OR Seek Alignment (internally)

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Characteristics of Strategic Intent

Indicates firm s intent to stake out a longparticular position over the long-term Involves establishing a BHAG - big, hairy, audacious goal Signals relentless commitment to winning
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Example of BHAG
General Electric
All businesses are held to a standard of being #1 or #2 in their industries as well as achieving good business results

John F. Kennedy
Put a man on the moon and return safely by the end of the decade

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Crafting a Strategy
An organization s strategy deals with
How to make the strategic vision a reality and achieve target objectives The game plan for
Pleasing customers Conducting operations Building a sustainable competitive advantage

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Take Aways
Strategy has become more important
Information, technology, globalization

Key ideas in the strategy making process

Mission (who are we) Vision (where do we want to go) Strategic intent / BHAG (major goal) Strategy (specific plan at different levels) Ethics (code of conduct or values)

Linkage & communication are important Avoid mission creep!

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Take Aways
Where strategy came from Strategic Management Process Who does strategy Next week
Read Airline Simulation Book (1-35) (1Bring Laptop

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