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Chapter 1

The Nature of Strategic Management

Strategic Management: Concepts & Cases Fred David

Ch 1 -1

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

Ch 1 -2

Strategic Management –Defined
Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization. An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry.

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Strategic Management –Defined
"Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment." (Lamb, 1984)
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Strategic Management-Defined

“Strategic Management can also be defined as "the identification of the purpose of the organisation and the plans and actions to achieve the purpose. It is that set of managerial decisions and actions that determine the long term performance of a business enterprise. It involves formulating and implementing strategies that will help in aligning the organisation and its environment to achieve organisational goals.” (Lamb, 1984)
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which are designed to achieve these objectives. developing policies and plans. vision and objectives. A balanced scorecard is often used to evaluate the overall performance of the business and its progress towards objectives. often in terms of projects and programs. and then allocating resources to implement the policies and plans. projects and programs. It entails specifying the organization's mission. Ch 1 -6 .Strategic management analyzes the major initiatives taken by a company's top management on behalf of owners. Recent studies and leading management theorists have advocated that strategy needs to start with stakeholders expectations and use a modified balanced scorecard which includes all stakeholders. involving resources and performance in external environments.

Strategy is an action that managers take to attain one or more of the organization’s goals. Strategy can also be defined as “A general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process”. 7 .

i. it deals with probability of innovations or new products. Without a perfect foresight. new methods of productions. Strategy deals with long term developments rather than routine operations.e. the firms must be ready to deal with the uncertain events which constitute the business environment.   Ch 1 -8 . Strategies dealing with employees will predict the employee behavior.  Features of Strategy Strategy is Significant because it is not possible to foresee the future. or new markets to be developed in future. Strategy is created to take into account the probable behavior of customers and competitors.

  Strategy is a well defined roadmap of an organization. It defines the overall mission. Strategy. vision and direction of an organization. in short. bridges the gap between “where we are” and “where we want to be”. Ch 1 -9 . The objective of a strategy is to maximize an organization’s strengths and to minimize the strengths of the competitors.

Purpose of Strategic Management To exploit and create new and different opportunities for tomorrow Ch 1 -10 .

the strategic plan is a company’s game plan Ch 1 -11 .Strategic Management In essence.

• It is also defined as the process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance. appraises it’s competitors.Strategic Management Process: • process means defining the organization’s strategy. Ch 1 -12 . • Strategic management is a continuous process that appraises the business and industries in which the organization is involved. and fixes goals to meet all the present and future competitor’s and then reassesses each strategy.

4 Stages of the Strategic Management Process Environment Scanning  Strategy formulation  Strategy implementation  Strategy evaluation  Ch 1 -13 .

After executing the environmental analysis process. scrutinizing and providing information for strategic purposes. Ch 1 -14 . It helps in analyzing the internal and external factors influencing an organization. management should evaluate it on a continuous basis and strive to improve it.Environmental Scanning Environmental scanning refers to a process of collecting.

managers formulate corporate. After conducting environment scanning.Strategy Formulation Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose. business and functional strategies. Ch 1 -15 .

Strategy Formulation Includes developing Vision & Mission Identifying External Opportunities & Threats Determining Internal Strengths & Weaknesses Establishing Long-Term Objectives Generating Alternative Strategies Choosing particularly Strategy to Pursue Ch 1 -16 .

Issues in Strategy Formulation Businesses to enter Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover Ch 1 -17 .

distributing resources. Strategy implementation includes designing the organization’s structure. and managing human resources.Strategy Implementation (Action Stage) Strategy implementation implies making the strategy work as intended or putting the organization’s chosen strategy into action. developing decision making process. Ch 1 -18 .

Strategy Implementation Steps       Developing a strategy-supportive culture Creating an operational and effective organizational structure Redirecting marketing efforts Preparing budgets according to requirements Developing an effective and prompt information systems Linking employee compensation to organizational performance Ch 1 -19 .

Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation Ch 1 -20 .

Issues in Strategy Implementation Action Stage of Strategic Management Mobilization of employees & managers Most difficult stage Interpersonal skills critical Ch 1 -21 .

The key strategy evaluation activities are appraising internal and external factors that are the root of present strategies. measuring performance.Strategy Evaluation Strategy evaluation is the final step of strategy management process. Evaluation makes sure that the organizational strategy as well as it’s implementation meets the organizational objectives. Ch 1 -22 . and taking remedial / corrective actions.

Strategy Evaluation Internal Review External Review Performance Measurement Taking Corrective Actions Ch 1 -23 .

when creating a new strategic management plan. Components of Strategic Management Process  Ch 1 -24 . in chronological order. These components are steps that are carried.

the development of strategies. and the making of todays decisions for tomorrows results. Ask the key question: “What is our Business?” This leads to the setting of objectives.Prime Task of Strategic Management Peter Drucker: Think through the overall mission of a business. Ch 1 -25 .

Integrating Intuition & Analysis The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty Ch 1 -26 .

Integrating Intuition & Analysis Intuition is based on:  Past experiences  Judgment  Feelings Intuition is useful for decision making in conditions of:  Great uncertainty  Little precedent  Highly interrelated variables  Several plausible alternatives Ch 1 -27 .

Integrating Intuition & Analysis Intuition & Judgment Involve management at all levels Influence all analyses Ch 1 -28 .

Adapting to Change Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed Ch 1 -29 .

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 Ch 1 -30 .

Strategic Management is Gaining and Maintaining Competitive Advantage Anything that a firm does especially well compared to rival firms Ch 1 -31 .

implementing. and evaluating strategies that capitalize on those factors Ch 1 -32 . Effectively formulating. competencies. Continually adapting to changes in external trends and events and internal capabilities.Achieving Sustained Competitive Advantage 1. and resources 2.

Strategists Gather Information Analyze Information Organize Information Ch 1 -33 .

Vision and Mission Statements Vision Statement – What do we want to become? Mission Statement – What is our business? Ch 1 -34 .

Governmental Technological Competitors Ch 1 -35 .External Opportunities and Threats Analysis of Trends        Economic Social Cultural Demographic/Environmental Political. Legal.

External Opportunities and Threats Basic Tenet of Strategic Management Take advantage of External Opportunities Strategy Formulation Avoid/minimize impact of External Threats Ch 1 -36 .

Internal Strengths and Weaknesses  Controllable activities performed especially well or poorly relative to competitors  Determined Ch 1 -37 .

Internal Strengths and Weaknesses  Typically located in functional areas of the firm Management  Marketing  Finance/Accounting  Production/Operations  Research & Development  Management Information Systems  Ch 1 -38 .

Internal Strengths and Weaknesses Assessing the Internal Environment Ratios Performance Measures Internal Factors Industry Averages Survey Data Ch 1 -39 .

Long-Term Objectives  Specific results that an organization seeks to achieve in pursuing its basic mission Long-term means more than one year  Ch 1 -40 .

motivating. and controlling Ch 1 -41 . organizing.Long-Term Objectives  Essential for ensuring the firm’s success  Provide direction  Aid in evaluation  Create synergy  Reveal priorities  Focus coordination  Provide basis for planning.

Strategies Means by which long-term objectives are achieved Ch 1 -42 .

Strategies  Examples  Geographic expansion  Diversification  Acquisition  Product development  Market penetration  Retrenchment  Divestiture  Liquidation  Joint venture Ch 1 -43 .

Sample Strategies  Table 1-1  Best Buy Levi Strauss   New York Times Company Ch 1 -44 .

Annual Objectives Short-term milestones that firms must achieve to reach long-term objectives Ch 1 -45 .

Policies Means by which annual objectives will be achieved Ch 1 -46 .

Ch 1 -47 .

Strategic Management Model  Strategic Management Process  Dynamic & continuous  More formal in larger organizations Ch 1 -48 .

Strategic Management  Communication is a key to successful strategic management Ch 1 -49 .

Benefits of Strategic Management Ch 1 -50 .

Benefits of Strategic Management  Nonfinancial Benefits       Enhanced awareness of threats Improved understanding of competitors’ strategies Increased employee productivity Reduced resistance to change Clearer understanding of performance-reward relationship Enhanced problem-prevention capabilities Ch 1 -51 .

Why Some Firms Do No Strategic Planning        Lack of knowledge of strategic planning Poor reward structures Fire fighting Waste of time Too expensive Laziness Content with success Ch 1 -52 .

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 Ch 1 -53 .

intricate.Pitfalls in Strategic Planning Strategic planning is an involved. and complex process that takes an organization into uncharted territory Ch 1 -54 .

meeting formats. team membership.Effective Strategic Planning is:       A people process more than a paper process A learning process Words supported by numbers Simple and nonroutine Varying assignments. and planning calendars Challenging assumptions underlying corporate strategy Ch 1 -55 .

predictable.Effective Strategic Planning continued       Welcomes bad news Requires open-mindedness and a spirit of inquiry Is not a bureaucratic mechanism Is not ritualistic or stilted Is not too formal. or rigid Does not contain jargon or arcane language Ch 1 -56 .

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 Ch 1 -57 .

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 assumes competition Military strategy assumes conflict  Difference   Ch 1 -58 .

Ch 1 -59 .