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Best Notes of Strategy

Best Notes of Strategy

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Best Strategy Notes
Best Strategy Notes

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Published by: cmverma82 on Sep 05, 2010
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CHAPTER 1
The Strategic Management Process
SYNOPSIS OF CHAPTER
This is an introductory chapter. Its purpose is to define critical concepts and introduce the main components of thestrategic management process. The chapter serves to establish the context within which subsequent chapters fit.This chapter begins with a discussion of the concept of strategy. The strategies an organization pursues have amajor impact upon its performance relative to its peers. The firm’s top managers have direct responsibility for choosing strategies that will lead to superior performance and provide competitive advantage. Next, the chapter equates superior performance with profitability, for profit-seeking enterprises. Sustainedcompetitive advantage occurs when a firm is able to maintain above-average profitability over an extended periodof time. Strategic management is just as crucial to nonprofits as it is to profit-seeking businesses.A discussion of the roles of strategic managers and the function of strategic leadership in an organization follows.It examines the roles and responsibilities of strategic managers at three main levels within an organization: thecorporate, business, and functional level. It also points out the attributes of sound strategic leadership.The chapter gives an overview of the formal strategic management process. The process consists of two phases.The first phase, formulation, includes the establishment of corporate mission, values, and goals; analysis of theexternal environment; analysis of the internal environment; and selection of an appropriate functional-, business-,or corporate-level strategy. The second phase, implementation, consists of the actions taken to carry out thechosen strategy.The traditional concept of the strategic planning process is one that is rational and deterministic, and orchestrated by senior managers. However, strategies may also emerge through other mechanisms. Next, the chapter presents a discussion of strategic planning in practice. Formal planning helps companies make better strategic decisions, and the use of decision aids can help managers make better forecasts. However, formalstrategic planning systems do not always produce the desired results.The final section of the chapter stresses the importance of effective decision making by the firm’s top managers inachieving superior performance.
TEACHING OBJECTIVES
10.Introduce students to the concept of strategy.20.Specify the relationships between superior performance, profitability, competitive advantage andsustainable competitive advantage.30.Identify the roles and responsibilities of strategic managers at different levels within the organization.40.Outline the main components of the strategic management process covered in subsequent chapters and showhow they fit together.50.Contrast the rational, deterministic view of strategy with alternate views, which describe strategy as anemergent process.60.Explain why formal strategic planning may not always lead to success, and 0identify ways of avoiding someof the common pitfalls associated with strategic planning.70.Identify the attributes associated with superior strategic leadership.
Copyright © Houghton Mifflin Company. All rights reserved.
 
Chapter 1: The Strategic Management Process
2
80.Describe some of the barriers to effective strategic decision making and the techniques for improvingdecision making.
0OPENING CASE: DELL COMPUTER
The Opening Case tells the story of Dell Computer, from its earliest days as a start-up in Michael Dell’s collegedorm room, to an extremely successful giant corporation, with estimated sales of over $30 billion in 2002. Dellhas the highest profitability in its industry, has maintained that leadership for several years, and even stayed profitable during the recent downturn in high technology industries.Dell’s phenomenal success is directly attributable to its direct-sales business model, which allows the firm to cutcosts and lower prices by eliminating the middlemen: wholesalers and retailers. Dell’s model also allows buyersto customize their computers quickly and easily, thus providing a high value-added product for a lower price thantraditional PC makers. Another important aspect of Dell’s business model is a just-in-time supply chain, with purchases made in great quantities, allowing the firm to further reduce inventory, obsolescence, and cost of rawmaterials.
Teaching Note:
This Opening Case provides an excellent opportunity to discuss many of the concepts that will beintroduced in Chapter 1. For example, Dell developed a business model that was unique and revolutionary at thetime. The model allowed the firm to add value for customers while keeping costs low, improving botheffectiveness and efficiency. Because the model was unique and led to improved effectiveness and efficiency, thefirm achieved a sustained competitive advantage. The business model was developed by Michael Dell, and thus provides an example of effective strategic leadership and vision. This case may be used to point out to studentsthat every firm, no matter how successful, is vulnerable to competitive attack. Although Dell dominates itsindustry today, so too did IBM dominate at one time, as did Apple, Osborne, and Atari. To highlight Dell’scurrent advantages, one avenue of discussion would involve asking students to describe conditions under whichDell might lose its competitive advantage.
LECTURE OUTLINE
I0.OverviewA0.Why do some organizations succeed and others fail? An answer can be found in the subject matter of this course. This course is about strategic management and the advantages that accrue to organizationsthat think strategically.B0.A
strategy
is a course of action that managers take in the effort to attain superior performance.C0.Understanding the roots of success and failure is not an empty academic exercise. Through suchunderstanding comes a better appreciation for the strategies that must be pursued to increase the probability of success and reduce the probability of failure.II0.Superior Performance and Competitive AdvantageA0.For businesses, superior performance is demonstrated through above-average profitability, ascompared to other firms in the same industry.
Profitability
is typically measured using after-taxreturn on invested capital.
 Show Transparency 1Figure 1.1: Return on Invested Capital in Selected Industries, 1997-2001
B0.The strategies that an organization’s managers pursue have a major impact on its performance relativeto its peers.C0.When a firm’s profitability is greater than the average profitability for all firms in its industry, it has a
competitive advantage
over its rivals. The greater the profitability, the greater is its competitiveadvantage. A
sustained competitive advantage
occurs when a firm maintains above-average profitability for a number of years.D0.0A
business model
describes managers’ beliefs about how a firm’s strategies will lead to competitiveadvantage and superior profitability. An appropriate business model is one component of a successfulstrategy.E0.Another component of a successful strategy is a favorable competitive or industry environment.0000
Copyright © Houghton Mifflin Company. All rights reserved.
 
Chapter 1: The Strategic Management Process
3
F0.Strategic management is relevant to many different kinds of organizations, from large multibusinessorganizations to small one-person enterprises and from publicly held profit-seeking corporations tononprofit organizations.III0.Strategic Managers and Strategic Leadership0A0.
General managers
are responsible for the overall performance of the organization or for one of itsmajor self-contained divisions.B0.
Functional managers
are responsible for specific business functions, such as human resources, purchasing, production, sales, customer service, and accounts.C0.The three main levels of management are the corporate level, the business level, and the functionallevel. General managers are found at the first two of these levels but their strategic roles differ,depending on their sphere of responsibility. Functional managers too have a strategic role, though of adifferent kind.
 Show Transparency 2Figure 1.2: Levels of Strategic Management 
D0.The corporate level consists of the CEO, board of directors, and corporate staff. The CEO’s role is todefine the mission and goals of the firm, determine what businesses the firm should be in, allocateresources to the different business areas of the firm, and formulate and implement strategies that spanindividual businesses.E0.The business level consists of the heads of the individual business units (divisions) and their supportstaff. Business unit (divisional) CEOs’ role is to translate general statements of intent at the corporatelevel into concrete strategies for individual businesses.F0.The functional level consists of the managers of specific business operations. They develop functionalstrategies that help fulfill the business- and corporate-level strategic goals. They provide most of theinformation that makes it possible for business and corporate-level general managers to formulatestrategies. They are closer to the customer than the typical general manager, and therefore functionalmanagers may generate important strategic ideas. They are responsible for the implementation of corporate- and business-level decisions.IV0.Strategic PlanningA0.The formal strategic management planning process can be broken down into a number of components. Each component forms a section of this course. Thus it is important to understand howthe different components fit together.B0.Together, the components form a cycle, from strategy formulation to implementation. After implementation, the results that are obtained must be monitored, and the results become an input tothe formulation process on the next cycle. Thus the strategic process is continuous.
 Show Transparency 3Figure 1.3: Main Components of the Strategic Planning Process
C0.The components are organized into two phases. The first phase is strategy formulation, whichincludes selection of the corporate mission, values, and goals; analysis of the external and internalenvironments; and the selection of appropriate strategies.D0.The second phase is strategy implementation, which includes corporate governance and ethics issues,as well as the actions that managers take to translate the formulated strategy into reality.
0STRATEGY IN ACTION 1.1: STRATEGIC PLANNING AT MICROSOFT
At first glance, formal strategic planning may seem to be incompatible with the unpredictable changes and thefree-wheeling cultures of high-technology firms. But Microsoft, a dominant high-tech organization, has had aformal planning process in place since 1994, when CEO Bill Gates hired Bob Herbold to head the operationsstaff. Herbold’s planning system looked at strategies for extending and maintaining the company’s established products, such as MS Windows, as well as strategies for speeding, developing, and easing adoption of its newer 
Copyright © Houghton Mifflin Company. All rights reserved.

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