CH 1 SM

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Chapter 1 Strategic Management Essentials

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 Describe the strategic-management process

Strategic management “The art and science of formulating, implementing, and


evaluating cross-functional decisions that enable an organization to achieve its
objectives.”

The term strategic management in this text is used synonymously with the term strategic
planning.

Strategic Planning Strategic management

 Strategic planning referring only to strategy  Used to refer to strategy


formulation. formulation, implementation, and
evaluation.
 Used in the business world
 Often used in academia.
 A strategic plan is, in essence, a company’s
game plan. Just as a football team needs a good
game plan to have a chance for success, a  The purpose of strategic
company must have a good strategic plan to management is to exploit and
compete successfully. create new and different
opportunities for tomorrow; long-
 A strategic plan results from tough managerial range planning, in contrast, tries
choices among numerous good alternatives, to optimize for tomorrow the
and it signals commitment to specific markets, trends of today.
policies, procedures, and operations in lieu of
other, “less desirable” courses of action.

 The strategic-management process ( 3 Stages )


Step 1 : Strategy formulation
A. Developing a vision and a mission.
B. Identifying an organization’s external opportunities and threats.
C. Determining internal strengths and weaknesses.
D. Establishing long-term objectives
E. Generating alternative strategies.
F. Choosing particular strategies to pursue. Because no organization has unlimited
resources, strategists must decide which alternative strategies will benefit the firm
most. Strategies determine long term competitive advantages.

 Strategy-formulation decisions commit an organization to specific products, markets,


resources and technologies over an extended period of time.

 Strategy formulation decisions


What new businesses to enter?
What businesses to abandon?
Whether to expand operations or diversify?
Whether to enter international markets?
Whether to merge or form a joint venture and how to avoid a hostile takeover?

Step 2: Strategy implementation (Action stage)


“Mobilizing employees and managers to put formulated strategies into action. Often
considered to be the most difficult stage in strategic management”

Requires a firm to:


A. Establish annual objectives.
B. Devise policies.
C. Motivate employees.
D. Allocate resources so that formulated strategies can be executed.

Strategy implementation includes:


A. Developing a strategy-supportive culture.
B. Creating an effective organizational structure.
C. Redirecting marketing efforts, preparing budgets.
D. Developing and using information systems.
E. Linking employee compensation to organizational performance.
Step 3: Strategy evaluation (Final stage in strategic management)

“Strategy evaluation is the primary means for obtaining this information”

 Managers desperately need to know when particular strategies are not working well.
 All strategies are subject to future modification because external and internal factors
constantly change.

Three fundamental strategy-evaluation activities are:


A. Reviewing external and internal factors that are the bases for current strategies.
B. Measuring performance.
C. Taking corrective actions. Strategy evaluation is needed because success today is no
guarantee of success tomorrow!

 Key terms in Strategic Management


Competitive advantage “any activity a firm does especially well compared to activities
done by rival firms” OR “any resource a firm possesses that rival firm’s desire.”

 Strategic management is all about gaining and maintaining competitive advantage.


 A firm must strive to achieve sustained competitive advantage by:
a) Continually adapting to changes in external trends and events and internal
capabilities, competencies, and resources.
b) Effectively formulating, implementing, and evaluating strategies that capitalize
on those factors.

Strategists “are the individuals most responsible for the success or failure of an
organization.”

 They have various job titles, such as chief executive officer, president, owner,
chair of the board, executive director, chancellor, dean, and entrepreneur.

 Strategists help an organization gather, analyze, and organize information. They


track industry and competitive trends, develop forecasting models and scenario
analyses, evaluate corporate and divisional performance, spot emerging market
opportunities, identify business threats, and develop creative action plans.
Strategic planners usually serve in a support or staff role.
Vision and Mission Statements

vision statement Mission statements

 Answers the question “What do we want  Answers the question “What is our
to become?” business?”

 Developing a vision statement is often “Enduring statements of purpose that


considered the first step in strategic distinguish one business from other
planning, preceding even development similar firms.”
of a mission statement.

 Many vision statements are a single  A mission statement identifies the


sentence scope of a firm’s operations in
product and market terms.

External opportunities and external threats

“Refer to economic, social, cultural, demographic, environmental, political, legal,


governmental, technological, and competitive trends and events that could significantly
benefit or harm an organization in the future.”

 External opportunities and threats are largely beyond the control of a single
organization—thus the word external.

EX:
• Consumers expect green operations and products.
• Marketing is moving rapidly to the Internet.
• An oversupply of oil is driving oil and gas prices down.
• Computer hacker problems are increasing.
• Unemployment and underemployment rates remain high globally.
• Winters are colder and summers are hotter than usual.
• New laws are passed.
• Competitors introduce new products.
• National catastrophes occur.
• Social media networking is greatly expanding.
Internal strengths and internal weaknesses

“Are an organization’s controllable activities that are performed especially well or


poorly.”

 Strengths and weaknesses are determined relative to competitors


 Identifying and evaluating organizational strengths and weaknesses in the functional
areas of a business is an essential strategic-management activity.

Long-Term Objectives (1 : 5 years )

Objectives can be defined as “specific results that an organization seeks to achieve in


pursuing its basic mission”

 Objectives should be challenging, measurable, consistent, reasonable, and clear. +


Smart (Specific, measurable, attainable, realistic and timely).

 Objectives are essential for organizational success because they provide direction;
aid in evaluation; create synergy; reveal priorities; focus coordination; and provide a
basis for effective planning, organizing, motivating, and controlling activities.

 Objectives are needed both for the overall company and each division.

Strategies (future-oriented )

“Are the means by which long-term objectives will be achieved.” OR “Are potential
actions that require top-management decisions and large amounts of the firm’s
resources.”

 Business strategies may include geographic expansion, diversification, acquisition,


product development, market penetration, retrenchment, divestiture, liquidation, and
joint ventures.

Annual objectives
“Short-term milestones that organizations must achieve to reach long-term
objectives.”

 Should be measurable, quantitative, challenging, realistic, consistent, and prioritized.


 They must also be established at the corporate, divisional, and functional levels in a
large organization.
 A set of annual objectives is needed for each long-term objective. These objectives are
especially important in strategy implementation, whereas long-term objectives are
particularly important in strategy formulation.

Policies

“Are the means by which annual objectives will be achieved.”

 Policies include guidelines, rules, and procedures established to support efforts to


achieve stated objectives.
 Policies are especially important in strategy implementation because they outline an
organization’s expectations of its employees and managers.
 Policies allow consistency and coordination within and between organizational
departments.

Notes:
 Strategies long term objectives
Are needed to achieve
Policies Annual objectives

 Every organization has a vision, mission, objectives, and strategy, even if these
elements are not consciously designed, written, or communicated.

 The strategic-management process is dynamic and continuous. A change in any one of


the major components in the model can necessitate a change in any or all of the other
components.

 A failure to accomplish annual objectives might

 Require a change in policy; or a major competitor’s change in strategy might require a


change in the firm’s mission

 Therefore, strategy formulation, implementation, and evaluation activities should be


performed on a continual basis, not just at the end of the year or semiannually.

 The strategic-management process never really ends.

 Application of the strategic-management process is typically more formal in larger and


well established organizations. Formality refers to the extent that participants,
responsibilities, authority, duties, and approach are specified. Smaller businesses tend
to be less formal.

 Firms that compete in complex, rapidly changing environments, such as technology


companies, tend to be more formal in strategic planning. Firms that have many
divisions, products, markets, and technologies also tend to be more formal in applying
strategic-management concepts.

 Greater formality in applying the strategic-management process is usually positively


associated with organizational success.
 Comprehensive Strategic-Management Model

 This model does not guarantee success, but it does represent a clear and practical
approach for formulating, implementing, and evaluating strategies.

 The strategic-management model that business ethics, social responsibility, and


environmental sustainability issues impact all activities in the model.

 The Strategic-Management Model

Where are we now?

Where do we want to go?

How are we going to get there?


 Benefits of Strategic Management
Strategic management
Allows an organization to be more proactive than reactive in shaping its own future; it
allows an organization to initiate and influence (rather than just respond to)
activities—and thus to exert control over its own destiny.

 Managers and employees become surprisingly creative and innovative when they
understand and support the firm’s mission, objectives, and strategies.

 Empowerment is the act of strengthening employees’ sense of effectiveness by


encouraging them to participate in decision making and to exercise initiative and
imagination, and rewarding them for doing so.

 Strategic planning is learning, helping, educating, and supporting process, not merely
a paper-shuffling activity among top executives. Strategic-management dialogue is
more important than a nicely bound strategic-management document.

 But strategic management is not a guarantee for success; it can be dysfunctional if


conducted haphazardly.

Benefits to a Firm That Does Strategic Planning


Financial Benefits Nonfinancial Benefits

Businesses using strategic-management Besides helping firms avoid financial


concepts show significant improvement demise, strategic management offers other
in sales, profitability, and productivity tangible benefits, such as:
compared to firms without systematic
planning activities  Enhanced awareness of external
threats.
High-performing firms tend to do  Improved understanding of
competitors’ strategies.
systematic planning to prepare for future
 Increased employee productivity.
fluctuations in their external and internal
environments. . High-performing firms  Reduced resistance to change.
seem to make more informed decisions  Clearer understanding of
with good anticipation of both short- and performance–reward relationships.
long-term consequences.  Empower managers and employees.
On the other hand, poorly often engage Strategic management enhances the
in activities that are shortsighted and do problem-prevention capabilities of
not reflect good forecasting of future organizations because it promotes
conditions. interaction among managers.

 Renew confidence in the current


Firms with management systems that business strategy or point to the need
utilize strategic-planning concepts, tools, for corrective actions.
and techniques generally exhibit superior  Increase discipline.
long-term financial performance relative  Improve coordination.
to their industry.  Enhance communication.
 Increase forward thinking.
 Business failures include  Improve decision making.
bankruptcies, liquidations, and court-  Increase synergy, and
mandated receiverships.  More effective allocation of time and
resources.
 Why Some Firms Do No Strategic Planning?
Ten reasons (excuses) often given for poor or no strategic planning in a firm
are as follows:

1. No formal training in strategic management.


2. No understanding of or appreciation for the benefits of planning.
3. No monetary rewards for doing planning
4. No punishment for not planning
5. Too busy “firefighting” (resolving internal crises) to plan ahead.
6. View planning as a waste of time, since no product/service is made.
Additional reasons include:
7. Laziness; effective planning takes time and effort; time is money.
8. Content with current success; failure to realize that success today is no guarantee
for success tomorrow; even Apple Inc. is an example.
9. Overconfident.
10. Prior bad experience with strategic planning done sometime/somewhere.

 Pitfalls in Strategic Planning


Being aware of potential pitfalls and being prepared to address them is essential
to success.
Here are some pitfalls to watch for and avoid in strategic planning:

1. Using strategic planning to gain control over decisions and resources.


2. Doing strategic planning only to satisfy accreditation or regulatory requirements.
3. Too hastily moving from mission development to strategy formulation
4. Failing to communicate the plan to employees, who continue working in the dark.
5. Top managers making many intuitive decisions that conflict with the formal plan.
6. Top managers not actively supporting the strategic-planning process
7. Failing to use plans as a standard for measuring performance
Additional pitfalls include:
8. Delegating planning to a “planner” rather than involving all managers.
9. Failing to involve key employees in all phases of planning.
10.Failing to create a collaborative climate supportive of change.
11.Viewing planning as unnecessary or unimportant.
12.Becoming so engrossed in current problems that insufficient or no planning is done.
13.Being so formal in planning that flexibility and creativity are stifled.
 Integrating Intuition and Analysis

The strategic- management process can be described as


An objective, logical, systematic approach for making major decisions in an
organization.

It attempts to organize qualitative and quantitative information in a way that allows


effective decisions to be made under conditions of uncertainty.

Intuition is particularly useful for making decisions in situations of great


uncertainty.

 Albert Einstein acknowledged the importance of intuition when he said, “I believe in


intuition and inspiration. At times 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.”

 Most organizations can benefit from strategic management, which is based on


integrating intuition and analysis in decision making.

 Analytical thinking and intuitive thinking complement each other.

 A strong military heritage underlies the study of strategic management. Terms such as
objectives, mission, strengths, and weaknesses were first formulated to address
problems on the battlefield. A fundamental difference between military and business
strategy is that business strategy is formulated, implemented, and evaluated with an
assumption of competition, whereas military strategy is based on an assumption of
conflict.

 Both business and military organizations must adapt to change and constantly improve
to be successful.

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