Part 1 Overview of Strategic Management

Chapter 1 The Nature of Strategic Management

“Without a strategy an organization is like a ship without a rudder, going round in circles. It’s like a tramp; it has no place to go”

“He who will not worry about what is far off will soon find something worse than worry”

THE PURPOSE
This chapter provides an over view of
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Strategic Management Model of Strategic Management Process Definition of Basic Activities & Terms Some Important Themes

What is strategic management

All firms have strategy even if it is informal, unstructured & sporadic all organizations do not know where they are heading. Game plan for sustainable competitive advantage By adapting to changes

Taking advantage of external opportunities & reduce impact of external threats capitalize on their internal strengths & eliminate internal weaknesses Represents a systematic, logical, & objective approach Multiple functions Tough managerial choices

Strategic Management Process

Integrating Intuition & Analysis. An objective, logical, systematic approach for making major decisions

Three Stages of Strategic Management Process
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Strategy formulation Strategy implementation Strategy evaluation

*communication is the key:understanding, commitment, ownership

Strategy Formulation Includes
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Developing a vision & mission Identifying external opportunities & threats Determining internal strengths & weaknesses Establishing long-term objectives Generating alternative strategies Choosing particular strategy

Strategy formulation issues
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What new business to enter, what business to abandon Whether to expand operations or diversify, whether to enter international markets Whether to merge or form a joint venture or Partnering or to buy a business or how to avoid a hostile take over How to allocate resources Business ethics

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Global Vs. domestic operations Vision/Mission Matrix analysis Partnering Competitive analysis Governance & guidelines for conducting an internal/ external strategy assessment

Strategy Implementation (action stage, the most difficult one)
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Establish annual objectives Devise policies Motivate employees Allocate resources

Strategy implementation issues includes
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Developing a strategy supportive culture Creating an effective organizational structure Redirecting Marketing efforts or introducing new marketing concepts Outsourcing Preparing budgets & doing financial analysis, developing new controls Developing & utilizing information systems Linking employee compensation to organizational performance Business ethics

Strategy Evaluation
Why: To know  Strategies need modification Three fundamental strategy evaluation activities

Reviewing Internal & External factors Measuring performance Taking Corrective actions

The Hierarchical Levels Involved
Corporate level Divisional or Strategic Business Unit level Functional

Definition of Key terms & Activities

Competitive Advantage Strategists

They help gather, analyze & organize information. Track industry & competitive rends, develop forecasting models & scenario analysis, evaluate corporate & divisional performance, spot emerging market opportunities, identify business threats & develop creative action plans.

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Vision Statement Mission Statement Opportunities & Threats (external)
Economic  Social  Cultural  Demographic  Environmental  Political, legal, governmental  Technological  Customers  Competitors These changes create different type of consumer & consequently need for different type of product, services & strategies.

Strength & Weaknesses (internal)

Typically related to functional areas of the firm (determined relative to competitors) Objectives: - specific results in pursuing basic mission Long-Term:- more than one year Give a direction Helps in evaluation Reveal priorities & create synergies & coordination Basis for planning, organizing, motivating & controlling activities

Long Term Objectives

Why objectives:  

Strategies

Means for achieving long term objectives., important for formulation Business Strategies include
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Geographic expansion (market development) Diversification Acquisition Product development Market penetration Retrenchment Divestiture Liquidation Joint ventures & partnership

Annual Objectives

Short term milestones to reach long term objectives important for strategy implementation, become basis for resource allocation Established at levels Set for

Policies

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Means by which annual objectives are achieved, important for strategy implementation Set for Developed at Outlines expectations Guidelines, rules & procedures to support efforts to achieve the objectives. Particularly includes guides to decision making & address recurring situations

Strategic Management Model
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Logical starting point Dynamic & continuous Strategic meetings (retreats )

to update firms’ vision / mission, opportunities / threats, strengths/ weaknesses, strategies, objectives, policies & performance Formality

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-----------------------------------------------------------------------------------------------Long Term Generate, Implement Implement Objectives Evaluate & strategies strategies: CH-5 select Manageme Marketing, strategies nt Issues fin / Acc, CH-6 CH-7 R&D, MIS CH-8 External Audit CH-3

Measure & Evaluate performanc e CH- 9

Vision & Mission Ch_2

Internal Audit CH-4

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Benefits of Strategic Management
Financial Benefits  Improvement in sales  Improvement in profitability  Improvement in productivity .

Non Financial Benefits: More proactive than reactive  Improved understanding of competitors’ strategy  Enhanced awareness of threats  Reduced resistance to change  Enhanced problem prevention capabilities  Enhances interaction

Better strategies for being more systematic, rationale, & logical Leads to ownership & empowerment

Decentralized line manager planning is replacing centralized staff planning

Guidelines for Effective Strategic Management
1. 2. 3. 4. 5. 6.

Ensure implementation People not paper process. Keep it as simple & non routine, eliminate jargon Attend to psychological, social, political, information, administrative dimensions Stimulate thinking Open mindedness Subjective factors such as attitudes towards risk, concern for social responsibility & organizational culture will always affect strategy.

Avoid Pitfalls
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Pursuing too many strategies using SM to gain control over decision & resources doing SM for sake of regulatory requirements hastiness in formulation failure to communicate intuitive decision making

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Lack of top management support failure to measure performance not involving all the managers or key employees failure to create a supportive climate for change being over formal in planning that flexibility & creativity are stifled

Why Some Firms Do Not Do Strategy Planning
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Poor reward structure Fire fighting Waste of time Too expensive Laziness Content with success

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Fear of failure Overconfidence Prior bad experience Self esteem Fear of the unknown Honest difference of opinion suspicion

Themes
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Global Considerations Impact Virtually All Strategic Decisions A necessity A borderless world with global citizens The dynamics of political, economic & cultural differences `

2.

Electronic commerce Has Become A Vital Strategic Management Tool competitive advantage:    

Direct Selling Communication Information B2B Expense, time, distance, space

3.

Natural Environment Has Become An Important Strategic Issue

defined as “surroundings in which an organization operates, including air, water, land, natural resources, flora, fauna, humans & their interrelation.” Some burning issues are global warming, bio-terrorism, increased pollution etc social responsibility & business ethics issues