STRATEGIC MANAGEMENT

01: STRATEGIC MANAGEMENT,

CORPORATE GOVERNNANCE AND SOCIAL
RESPONSIBILITY

Birat Shrestha/ Resta Jha

MBA, KFA [Lincoln University]
March 2020 Saturday,
9:30AM-1:00/2:00PM
Basic Concepts
Conceptual Introduction to Strategy
• Strategy is an action plan to reach somewhere
• Strategic plan is a bridge to somewhere rather than nowhere
• A strategy of a corporation forms a comprehensive master
plan stating how the corporation will achieve its mission and
objectives
• It is developing a competitive advantage
• CEOs and a bear
– Two CEOs hiking in the woods
– A bear comes in front and snarls up
– The first CEO puts on the knapsack and a pair of jogging shoes
– The second CEO says – “hey you can’t outrun that bear”
– The first CEO say – “yes, but I can definitely outrun you”
Introduction to
Strategic Management – Definition
• Strategic management can be defined as the art
and science of formulating, implementing, and
evaluating cross-functional decisions that enable
an organization to achieve its objectives
• Strategic management is that set of managerial
decisions and actions that determines the long-
run performance of a corporation
• Strategic management allows an organization to
be more proactive than reactive in shaping its own
future
Phases of Strategic Management
• Phase 1 – Basic financial planning
– It is done when proposing a year’s budget
– The information is coming from within the firm
• Phase 2 – Forecast-based planning
– In addition to internal information, managers gather available environmental data
and extrapolate current trends five years into the future
• Phase 3 – Externally oriented (strategic) planning
– The company seeks to increase its responsiveness to changing market and
competition by thinking strategically
– Top-down planning emphasizes formal strategy formulation and leaves the
implementation issues to the lower management levels
• Phase 4 – Strategic management
– Top management forms planning groups of managers and key employees at many
levels, from various departments and workgroups from the inputs of lower
managerial levels
– They develop and integrate a series of strategic plans aimed at achieving the
company’s primary objectives
– The annual five-year strategic plan is replaced with the strategic thinking at all
levels of the organization throughout the year
 Globalization
• Globalization is the integrated internationalization
of markets and corporations that has changed the
way modern corporations do business
• The worldwide availability of the Internet and
supply-chain logistical improvements mean that
companies can locate anywhere and work with
multiple partners to serve any markets
• As more industries become global, strategic
management is becoming an increasingly
important way to keep track of international
developments and position a company for long-
term competitive advantage
 Basic Elements of the Strategic Management Process

EVALUATION
ENVIRONMENTAL STRATEGY STRATEGY AND
SCANNING FORMULATION IMPLEMENTATION CONTROL
 Strategic Management Model
Environmental Strategy Evaluation
Strategy Formulation and Control
Scanning Implementation

EXTERNAL Vision
Societal
Environment: Reason
for Mission
General Forces existence Strategies
Task Environment
What
Industry Analysis results to Plan to Policies
accomplish achieve
by when the Broad
mission & Programs
guidelines
objectives for
INTERNAL decision Activities
needed to Budgets
Structure making
accomplish
Chain of Command a plan Cost of
Procedures
Culture the
Beliefs, program
Sequence
Expectations, Values of steps Performance
Resources needed to
Assets, Skills, do the job Actual
Competencies, results
Knowledge

Feedback/Learning
 Environmental Scanning
• Monitoring, evaluating, and disseminating of
information from the external environments
to key people within the corporation
• The purpose – identify strategic factors –
internal and external factors that determine
the future of the corporation
• Conducting environmental scanning – SWOT
analysis – internal Strengths and Weaknesses
– external Opportunities and Threats
 Strategy Formulation
• The development of long range plans for the
effective management of environmental
opportunities and threats in the light of
corporate strengths and weaknesses
• It includes defining
– The corporate mission
– Specifying achievable objectives
– Developing strategies
– Setting policy guidelines
 Strategy Formulation
• Business Vision
– “What do we want to become?” – “we want to become the top herbal based company”
– A clear vision provides the foundation for developing a comprehensive mission
statement
• Mission statement
– “What is our business?” – “to improve quality of home life by designing,
building, marketing, and servicing the best appliances in the world” – Maytag
– Developing a business mission is always a choice between alternatives
regarding the business environment
– It is the purpose of organization’s existence
– It is stated in a widely understood way
– It serves as a framework for evaluating activities
– It provides direction and a focal point
– It includes characteristics – customers, products or services, markets
technology, concern for survival, growth, profitability, philosophy (values,
beliefs, priorities), self –concept (competence), concern for public image
(environmental concern) and concern for employees (as a valuable asset)
• Objectives / Goals
Strategy Formulation
– It is the end results of planned activity
– They state what is to be accomplished by when should be quantified as possible
– It should have S-M-A-R-T characteristics
– It is the fulfillment of corporation’s mission
– Areas of goals and objectives – profitability, efficiency, growth, market share (market
leadership), reputation (top company), survival (avoiding bankruptcy), technological
leadership (innovations, creativity)
• Strategies
– Master plan stating how the corporation will achieve its mission and objectives –
action plan
– Hierarchy of strategy – corporate strategy (direction), business strategy (product level –
competitive and cooperative), functional strategy (department based – productivity)
• Policies
– Broad guideline for decision making that links formulation of strategy with its
implementation – rules and procedures
– Ensuring that employees make decisions and take actions that supports the
corporation’s mission, objectives, and the strategies
– “Researchers should spend 15% of their time working on something other than their
primary products” – this supports 3Ms strong product development strategy
 Strategy Implementation
• Program
– A statement of the activities or steps needed to accomplish a plan
– It makes the strategy action-oriented
– It may involve re-structuring the corporation, changing the internal culture,
beginning the new research effort, forming a strategic alliance
– PepsiCo program of “Power of One” – moving Pepsi soft drinks next to Frito-Lay
chips, so that shoppers could be tempted to pick up both when they chose one
– PepsiCo people delivered and stocked the shelves for them – the program
was extended to developing nations – market share increased
– Programs should be examined compared & evaluated in terms of – feasibility,
sequence, location, pace, value
• Budgets
– A statement of a corporation’s program in terms of dollars
– Detailed cost of each program
– “Hurdle rate” – management demanding certain percentage return on
investment before approving a new budget
 Strategy Implementation
• Procedures
– It is Standard Operating Procedures (SOP)
– Sequential steps or techniques that describes how a
particular task is to be done
– Detailed activities to complete the corporation’s programs
– PepsiCo’s “Power Of One” program – the company’s sales
people developed the set of procedures to persuade
supermarket managers to add shelf space and displays in
poorer performing locations, display snack foods with soft
drinks, and bring the two products together at the end-of-
aisle displays – logistics people ensured with PepisoCo truck
drivers to monitor the displays when dropping merchandise
 Evaluation and Control
• It is the process in which corporate activities
and performance results are monitored
• Comparison of actual performance with
desired performance
• Strategic adjustments as per performance
 Feedback/Learning Process
• Strategies and programs are taken back for
revisions and corrections
• Poor performance (as measured in evaluation
and control) – indicates something has gone
wrong with either strategy formulation or
implementation – or key variable such as new
competitor was ignored during environmental
scanning or assessment
 Strategic Decision Making
• Entrepreneurial mode
– Strategy is made by one powerful individual
– The focus is on opportunities; problems are secondary
– Strategy is guided by the founder’s own vision of direction and exemplified by bold
decisions
– The dominant goal is growth of the corporation
– Amazon.com, reflected Jeff Bezos’ vision of using Internet to market books and more
• Adaptive mode
– It is also referred to as “”muddling through”
– This decision making mode is characterized by reactive solutions to existing problems,
rather than proactive search for opportunities
– Much bargaining goes on concerning priorities of objectives
– Strategy is fragmented and is developed to move corporation forward incrementally
– Encyclopedia Britannica Inc relied on door-to-door selling after dual career couple made
the approach obsolete – and it changed to TV advertising, Internet marketing and
offered CD-ROMs to subscribers
– This is more appropriate to Government organizations, Universities, hospitals
 Strategic Decision Making
• Planning mode
– It involves the systematic gathering of information for situation analysis, the
generation of feasible alternative strategies, and the selection of the most
appropriate strategy
– It includes both the proactive search for new opportunities and the reactive
solution of existing problems
– When IBM was suffering in rapid decline in sales and its market share of
Mainframe computers and IT service line was growing, the company made a
strategic decision to invest in and offer IT system solutions to its client
companies
• Logical incrementalism
– Top management has a reasonably clear idea of the corporation’s mission and
objectives, but in its development of strategies, it chooses to use “an
interactive process in which the organization probes the future, experiments
and learns from a series of partial (incremental) commitments rather than
through global formulations of total strategies
– Although the mission and objectives are set, the strategies are allowed to
emerge out of debate, discussion and experimentation
– This approach is more useful in the rapidly changing business environment
CORPORATE GOVERNANCE AND
SOCIAL RESPONSIBILITY
 Corporate Governance
• A corporation is a mechanism established to allow different parties to contribute capital,
expertise, and labor for their mutual benefit
• The investor/shareholder participates in the profits of the enterprise without taking
responsibility for the operations
• Management runs the company without being responsible for personally providing funds
• Laws have been passed that give shareholders limited liability and, correspondingly, limited
involvement in a corporation’s activities
• Directors as the representative of shareholders have both the authority and the
responsibility to establish basic corporate policies and to ensure that they are followed
• Directors have both the authority and the responsibility to establish basic corporate policies
and to ensure that they are followed
• Corporate governance refers to the relationship among these three groups in determining
the direction and performance of the corporation
• Boards can range from phantom boards with no real involvement to catalyst boards with a
very high degree of involvement – active board involvement in strategic management is
positively related to a corporation’s financial performance and its credit rating
 Responsibilities of the Board
1. Setting corporate strategy, overall direction,
mission, or vision
2. Hiring and firing the CEO and top management
3. Controlling, monitoring, or supervising top
management
4. Reviewing and approving the use of resources
5. Caring for shareholder interests
The average amount of time Boards spend on a
given Issue during their Meetings
• Strategy (development and analysis of
strategies)—24%
• Execution (prioritizing programs and
approving mergers and acquisitions)—24%
• Performance management (development of
incentives and measuring performance)—20%
• Governance and compliance (nominations,
compensation, audits)—17%
• Talent management—11%
 Role of Board of Directors
• Monitor: By acting through its committees, a board can keep
abreast of developments inside and outside the corporation,
bringing to management’s attention developments it might
have overlooked
• Evaluate and influence: A board can examine management’s
proposals, decisions, and actions; agree or disagree with
them; give advice and offer suggestions; and outline
alternatives – more active boards perform this task in
addition to monitoring
• Initiate and determine: A board can delineate a corporation’s
mission and specify strategic options to its management -
only the most active boards take on this task in addition to
the two previous ones.
 Role of Top Management
• The top management function is usually conducted by the
CEO of the corporation in coordination with the COO (Chief
Operating Officer) or president, executive vice president, and
vice presidents of divisions and functional areas
• The board of directors holds top management primarily
responsible for the strategic management of a firm
• Top management responsibilities, especially those of the
CEO, involve getting things accomplished through and with
others in order to meet the corporate objectives
• Two primary responsibilities of the CEO with the top
management team support that are crucial to the effective
strategic management of the corporation are:
1. Provide executive leadership and a strategic vision
2. Manage the strategic planning process
 Executive Leadership and Strategic Vision
• Executive leadership is the directing of activities toward the
accomplishment of corporate objectives
• A strategic vision is a description of what the company is capable of
becoming – communicated in the company’s mission and vision
statements
– The CEO articulates a strategic vision for the corporation (the CEO
envisions what a company can become as per changing customer
requirement)
– The CEO presents a role for others to identify with and to follow (sets an
example by doing in terms of office behaviors, norms, attitudes and values)
– The CEO communicates high performance standards and also shows
confidence in the followers’ abilities to meet these standards (the leader
empowers followers by raising their beliefs in their own capabilities –
motivating towards high performances and allowing key personnel to
handle important projects and represent the company in public forums)
 Managing the Strategic Planning Process
• Asking business units and functional areas to propose strategic
plans
• Research suggests that bottom-up strategic planning may be
most appropriate in multidivisional corporations operating in
relatively stable environments but that top-down strategic
planning may be most appropriate for firms operating in
turbulent environments
• Evaluating unit plans and providing feedback – it may require
each unit to justify its proposed objectives, strategies, and
programs in terms of how well they satisfy the organization’s
overall objectives in light of available resources
• If a company is not organized into business units, top managers
may work together as a team to do strategic planning
 Social Responsibilities of
Strategic Decision Maker
1. Economic responsibilities of a business organization’s management are to produce goods
and services of value to society so that the firm may repay its creditors and shareholders.
2. Legal responsibilities are defined by governments in laws that management is expected to
obey. For example, U.S. business firms are required to hire and promote people based on
their redentials rather than to discriminate on non-job-related characteristics such as race,
gender, or religion.
3. Ethical responsibilities of an organization’s management are to follow the generally held
beliefs about behavior in a society. For example, society generally expects firms to work
with the employees and the community in planning for layoffs, even though no law may
require this. The affected people can get very upset if an organization’s management fails
to act according to generally prevailing ethical values.
4. Discretionary responsibilities are the purely voluntary obligations a corporation assumes.
Examples are philanthropic contributions, training the hard-core unemployed, and
providing day-care centers. The difference between ethical and discretionary
responsibilities is that few people expect an organization to fulfill discretionary
responsibilities, whereas many expect an organization to fulfill ethical ones
 Ethical Decision Making
• A code of ethics specifies how an organization
expects its employees to behave while on the job
– Clarifies company expectations of employee conduct
in various situations
– Makes clear that the company expects its people to
recognize the ethical dimensions in decisions and
actions
Unethical Practices at Enron, WorldCom, Tyco –
Exposed by Whistle-Blowers
• Off balance sheet partnerships used to hide
the company’s deteriorating finances
• Revenue from long-term contracts being
recorded in the first year instead of being
spread over multiple years
• Financial reports being falsified to inflate
executive bonuses
• Manipulation of the electricity market—
leading to a California energy crisis
 Thank You/Best Wishes
• Questions/Answers/Discussions