INTRODUCING STRATEGIC

MANAGEMENT

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 “Cheshire Puss” she (Alice) began…
 “Would you tell me, please, which way I
ought to go from here?”

 “That depends a good deal on where you

want to get to “ said the Cat.

 Lewis Carroll
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 “Without a strategy the organization is like
a ship without a rudder, going around in
circles”.

 Joel Ross and Michael Kami

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 “ All men can see the tactics whereby I
conquer, but what none can see is the
strategy out of which great victory is
evolved”
 Sun-Tzu (Chinese military strategist, 3000
years ago)

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 Definition of
Strategic Management
Strategic Management
That set of managerial decisions and
actions that determines the long-run
performance of a corporation

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 Strategic management is the art and
science of formulating, implementing, and
evaluating cross-functional decisions that
enable an organization to achieve its
objectives

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 What is Strategic Management?
 Strategic management is undertaken by the top
management of the organization.

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What is Strategic Management?

 It calls for managers to move away

from the narrow, specialized technically
oriented perspective to a more
comprehensive view of the firm.

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 Definition of Strategy
 STRATEGY is the direction of an
organization over the long term, which
achieves advantage of the organization
through its configuration of resources
within a changing environment and to
fulfill stakeholder expectations
 STRATEGY is the long term direction of an
organization
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 Benefits of Strategic
Management
 Financial Benefits
 Non Financial Benefits

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 Financial Benefits
 More profit and success
 More informed decisions with good
anticipation of both short term and long
term consequences
 Less business failures

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 Non Financial Benefits
1. Allows identification, prioritization and
exploitation of opportunities
2. Provides an objective view of
management problems
3. Represents a framework for improved
coordination and control of activities
4. Minimizes the effects of adverse
conditions and changes

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5. Allows major decisions to better support
established objectives
6. Less ad-hoc decisions
7. Creates a framework for internal
communication
8. Helps integrate the behavior of individuals into
a total effort
9. Provides a basis for clarifying individual
responsibilities

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11. Encourages forward thinking
12. Provides a cooperative, integrated, and
enthusiastic approach to tackling
problems and opportunities
13. Encourages a favorable attitude towards
change
14. Discipline and formality in managing
business

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 Why some firms do no strategic
planning
 Poor reward structures
 Fire-fighting
 Too expensive
 Laziness
 Content with success
 fear of failure
 Overconfidence
 Prior bad experience
 Self interest
 Fear of the unknown
 Honest difference of opinion
 Suspicion

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 Pitfalls in Strategic Planning
 Using SP to gain control over decisions and
resources
 Doing SP only to satisfy accreditation or
requirements
 Quick move from mission development to
strategy formulation
 Failing to communicate the plan to employees
 Making intuitive decisions conflicting with the
formal plan

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 Top management not supporting the
strategic planning process
 Failing to use plans as a standard for
measuring performance
 Delegating planning to a ”planner” rather
than involving all managers
 Failing to involve key employees in all
phases of planning

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 Failure to create a collaborative climate
supportive of change
 Viewing planning to be unnecessary or
unimportant
 Becoming so involved with current
problems that no planning is done
 Being so formal in planning that flexibility
and creativity are stifled

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 www.entarga.com/stratplan/index.htm
 www.mindtools.com/plfailpl.htm/
 www.des.calstate.edu/limitations.htm/
 www.ethicsweb.ca/codes
 www.stetson.edu/-rhansen/strategy

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 Three Key Strategic Questions
 Where is the organization now?
 If no changes are made, where will the
organization be in one, two, five or ten
years? Are the answers acceptable?
 If the answers are not acceptable, what
specific actions should management
undertake? What are the risks and payoffs
involved?
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 Strategic Planning Process -
Three Basic Questions
Long-
1: Where Do We Want To Go? Term
View

Situation
2: Where Are We Now?
Analysis

3: What Must We Do To Close The Gap? Strategy

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 Challenges to Strategic
Management
 Globalization
 Electronic Commerce

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 Globalization
 Globalization (the internationalization of
markets and corporations) has changed the
way modern corporations do business
 A global (worldwide) market instead of a
national market
 SM is a way to keep track of international
developments and position the company
for long-term competitive advantage
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 Regional Trade Associations
 RTA are changing the way to conduct
international business
 Force corporations to establish a
manufacturing presence wherever they
wish
 Harmonized standards so that products can
be sold and moved across national
boundaries
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 Regional Trade
Associations/Agreements
 European Union (EU)
 North American Free Trade Agreement
(NAFTA)
 Mercosur (Argentina, Brazil, Urugway and
Paragway)
 Association of South East Asian Nations
(ASEAN) (Brunei, Indonesia, Malaysia, the
Philippines, Singapore, Thailand and Vietnam)
 FTA (Australia, New Zealand)
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 EUROPEAN UNION
 Europe
 European Union (EU)
 Grouping of 25 European
countries that agreed to
support mutual economic
growth

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 NAFTA
 The Americas
 North American Free Trade
Agreement (NAFTA)
 Agreement for free flow of goods
and services between the U.S.,
Canada, and Mexico
 Free Trade of the Americas
(FTAA)—Alaska to Chile—is a
possibility

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 Asian and the Pacific Rim
 Rivals EU in size and is
growing
 Economic power of Japan and
China
 Asia-Pacific Economic
Cooperation (APEC) is a
growing regional economic
alliance
 Human rights and intellectual
property issues

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 Africa
 Beckons international
business
 Increased attention to
stable countries
 South African Development
Community (SADC) links 14
countries in trade and
economic development

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 Electronic Commerce
 refers to the use of the internet to conduct business
transactions
 internet is breaking down traditional distribution
channels
 The balance of power is shifting to the consumer
 companies exploit the internet to become more
innovative and efficient
 The pace of business is increasing
 The internet is pushing corporations out of their
traditional boundaries
 Knowledge is becoming the key asset and a source of
competitive advantage

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 Theories of Organizational
Adaptation
1. Population Ecology: organizations do not
change and are replaced by others more suited to
the environment
2. Institution Theory: organizations can imitate
other successful organizations
3. Strategic Choice perspective organizations can
reshape the environment
4. Organizational Learning Theory: using
knowledge to improve the fit with the
environment

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 Creating a Learning
Organization
 Strategic flexibility demands a long term
commitment to the development and nurturing
of critical resources
 It demands that the company becomes a
learning organization
 Strategic management is essential to learning
organizations to avoid stagnation through a
continuous self-examination and experimentation

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 Learning Organization
 An organization skilled at creating, acquiring,
transferring knowledge, and at modifying its
behavior to reflect new knowledge and
insights

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 Learning organizations are skilled at 4
main activities :
1. Solving problems systematically

2. Experimenting with new approaches

3. Learning from their own experiences as

well as from the experiences of others
4. Transferring knowledge quickly and
efficiently throughout the organization
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 Triggering Events for
Strategic Change
 New CEO
 External intervention
 Threat of a change in ownership
 Performance gap
 Strategic Inflection Point

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 Characteristics of
Strategic Decisions
 Rare
 Consequential
 Directive

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 Characteristics of Strategic
Decisions
 Concerned with the long term direction of an
organization
 Trying to achieve some advantage to the
organization over the competition
 Concerned with the scope of the organization’s
activities
 Concerned with matching of the resources and
activities of an organization to the environment
(Strategic Fit)
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 Characteristics of Strategic
Decisions
 Strategic Fit is developing strategy by identifying
opportunities in the business environment and
adapting resources and competences so as to take
advantage of these
 Concerned with building on or “stretching an
organization’s resources and competences to create
opportunities or to capitalize on them
 Stretch is the leverage of the resources and
competences of an organization to provide
competitive advantage and/or yield new opportunities

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 Characteristics of Strategic
Decisions
 May require major resource changes for
an organization
 Are likely to affect operational decisions
 Is affected by the values and expectations
of those who have power in and around
the organization

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 Basic Elements of the Strategic
Management Process

Evaluation
Environmental Strategy Strategy
and
Scanning Formulation Implementation
Control

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 Basic Model of
Strategic Management
Strategic Management consists of four
basic elements
1. Environmental scanning
2. Strategy formulation
3. Strategy implementation
4. Evaluation and control

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 Strategic Management Model
Environmental Strategy Strategy Evaluation
and Control
Scanning Formulation Implementation and Control

External Mission
Reason for
Societal
existence
Environment Objectives
General Forces
What results
to
Task Strategies
accomplish
Environment
by when Plan to
Industry Analysis
achieve the
Policies
mission &
Internal objectives Broad
guidelines for Programs
Structure decision Process
Chain of Command making Activities to monitor
needed to performance
Culture Budgets and take
accomplish
Beliefs, Expectations, a plan corrective
Cost of the
Values action
programs
Procedures
Resources
Sequence
Assets, Skills
of steps
Competencies,
needed to
Knowledge do the job Performance

Feedback/Learning

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 Societal Environment

Composed of general forces in

environment

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Environmental Variables
Societal Environment

Sociocultural Task Economic

Forces Environment Forces
(Industry)

Shareholders Suppliers

Governments
Internal
Employees/
Environment
Special Labor Unions
Interest Structure
Culture
Groups
Resources
Competitors

Customers
Trade Associations
Creditors
Political-Legal Technological
Communities
Forces Forces

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 Task Environment
Composed of
 Groups in environment that directly affect
or are affected by the organization’s
operations
 (Often called industry)

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 Structure

The way a corporation is organized in

terms of communication, authority, and
workflow

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 Corporate Culture

Collection of beliefs, expectations, and

values learned and shared by members
and transmitted from one generation of
employees to another

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 Resource

An asset, competency, process, skill, or

knowledge controlled by the corporation

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 Definition of Strategy
Formulation
Strategy Formulation
The process of developing long-range
plans to deal effectively with
environmental opportunities and threats
in light of corporate strengths and
weaknesses

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Composed of
 Mission
 Objectives
 Strategies
 Policies

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 Definition of Mission
Mission
The purpose or reason for the corporation’s
existence. It may be narrow or broad in
scope.

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 Products
Services Markets
Customers

Technology

Employees
Mission
Elements

Survival
Growth
Profit
Public
Image
Self-Concept Philosophy

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 Definition of Vision
 Vision or Strategic Intent is the desired
future state of the organization

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 The Elements of a Strategic Vision
 Defining what business the company is
presently in
 Deciding on a long term strategic courses
for the company to pursue
 Communicating the vision in ways that are
clear, exciting, and inspiring

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 Vision vs. Mission
 Amoco mission statement :
 “ Amoco is a worldwide integrated petroleum
and chemical company. We find and develop
petroleum resources and provide quality
products and services for our customers. We
conduct our business responsibly to achieve a
superior financial return balanced with our long-
term growth, benefiting shareholders and
fulfilling our commitment to the community and
the environment”
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 Amoco Vision Statement :
 “Amoco will be a global business enterprise,
recognized throughout the world as preeminent
by employees, customers, competitors,
investors, and the public. We will be the
standards by which other businesses measure
their performance. Our hallmarks will be the
innovation, initiative and teamwork of our
people and our ability to anticipate and
effectively respond to change and to create
opportunities”
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 Pepsi Co Mission Statement
 PepsiCo’s mission is to increase the value of our
shareholders’ investment. We do this through
sales growth, cost controls, and wise investment
resources. We believe our commercial success
depends upon offering quality and value to our
consumers and customers providing products
that are safe, wholesome, economically sound,
and providing a fair return to our investors while
adhering to the highest standards of integrity

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 Ben & Jerry’s Mission
 Ben & Jerry’s mission is to make, distribute and
sell the finest quality all-natural ice cream and
related products in a wide variety of innovative
flavors made from Vermont dairy products. To
operate the Company on a sound financial basis
of profitable growth, increasing value for our
shareholders, and creating career opportunities
and financial rewards for our employees. To
operate the Company in a way that actively
recognizes the central role that business plays in
the structure of society by initiating innovative
ways to improve the quality of life of a broad
community—local, national and international. 58
 Mission Statement Evaluation Matrix

COMPONENTS          

Concern for
Survival,
Products Growth,
Organization Customers Services Markets Profitability Technology

           

PepsiCo Yes No No Yes No

Ben & Jerry's No Yes Yes Yes No

           

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 Mission Statement Evaluation Matrix

COMPONENTS          

Self- Concern for Concern for

Organization Philosophy Concept Public Image Employees

         

PepsiCo Yes No No No

Ben & Jerry's No Yes Yes Yes

         

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 Definition of Objectives

 Objectives
 The end results of planned activity. They
state WHAT is to be accomplished by WHEN.
They should be quantified, if possible.

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 Strategy Formulation
Establishing Long Term
Objectives

– Specific
– Measurable
– Achievable/Attainable
– Rational
– Time Bound

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 Areas for Setting Objectives
 Profitability (Net Profits)
 Efficiency (low costs)
 Growth (increase in total assets)
 Shareholder wealth (dividends plus stock
price appreciation)
 Utilization of resources (return on
investment or equity)
 Reputation (being considered a top firm)
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 Contribution to employees
 Contribution to society
 Market leadership
 Technological leadership
 Survival
 Personal needs of top management

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 Definition of Strategy
Strategy
A comprehensive master plan stating
HOW the corporation will achieve its
mission and objectives

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 Definition of
Corporate Strategy
Corporation’s overall direction and the
management of its businesses

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 Definition of
Business Strategy
Emphasizes improving the competitive
position of a corporation’s products or
units

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 Definition of
Functional (operational) Strategy
Maximizes resource productivity

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Hierarchy of Strategy
Corporate Strategy

Business
(Division Level)
Strategy

Functional
Strategy

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 Definition of Policies
Policies
Broad guidelines for making decisions

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 Definition of Strategy
Implementation
Strategy Implementation
The process of putting strategies and
policies into action through the development
of
 Programs

 Budgets

 Procedures

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 Definition of Program
Program
A statement of activities or steps needed
to accomplish a single-use plan

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 Definition of Budget
Budget
A statement of a corporation’s program in
dollar terms

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 Definition of Procedures
Procedures
A system of sequential steps or techniques
that describe in detail how to perform a
particular task or job

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 Definition of Evaluation
and Control
Evaluation and Control
The process of monitoring corporate
activities and performance results so that
actual performance can be compared with
desired performance

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 Modes of Strategy Formulation
(Mintzberg)
 Entrepreneurial Mode (made by a powerful
individual, focus on opportunity)
 Adaptive Mode ( reactive solutions to existing
problems)
 Planning Mode (situation analysis and rational
selection of alternatives)
 Logical incrementalism (strategy emerges from
debates, discussions, experimentation, useful
when the environment is changing rapidly)
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 Strategic Decision-Making
Process 3(a)

Scan and
3(b)

Analyze
Assess External
External Factors:
Environment:  Opportun-
Societal ities
Task  Threats

1(a) 1(b) 2 5(a) 5(b) 6(a) 6(b) 7 8

Examine and Review Select Generate

Evaluate the Corporate Strategic Review and and Select Implement
Evaluate Revise as and Strategies: Evaluate
Current Current: Governance: Factors Evaluate
 Mission  Board of (SWOT) Necessary: Strategic Recommend  Programs and
Performance Mission Best  Budgets Control
Results Objectives Directors in Light of Alterna-
 Strategies  Top Man- Current  Objectives tives Alternative  Procedures
 Policies agement Situation

4(a) 4(b)
Scan and
Assess Analyze
Internal Internal
Environment: Factors:
 Structure  Strengths
Culture  Weak-
Resources nesses

Strategy Strategy Evaluation

Formulation: Implementation and
Steps 1 – 6 Step 7 Control:
Step 8

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 Characteristics of a good
strategy
 Provides answers for the following questions:
1. Arenas : where will we be active?

2. Vehicles: how will we get there?

3. Differentiators: how will we win in the market

place?
4. Staging : what will be our speed and sequence
of moves
5. Economic logic: how will we obtain our returns?

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 Strategic Management Process at
Maytag Corporation (1993): Mission
& Objectives
Strategy Formulation

Mission
 Broad: To serve the best interests of shareowners, customers, and
employees
 Narrow: To become a full-line globally-oriented major home
appliance manufacturer and marketer

Objectives
 Increased profitability
 Number one in customer satisfaction
 Number three in North American unit sales

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 Strategic Management Process at
Maytag Corporation (1993):
Strategies Strategies & Policies
 To grow horizontally where the corporation is not yet well represented
through external acquisition or joint ventures
 To grow horizontally internally by improving efficiency and quality of acquired
companies and by using one business unit’s expertise in one acquired are to
introduce quality products from a business unit in another area

 Policies
 No cost reduction proposal will be approved if it reduces product quality in
any way
 Every product, from the least expensive to the highest priced, should be
superior to the competition in overall quality and performance
 The corporation must not emphasize market share at the expense of
profitability
 Business units must be managed for synergies, while simultaneously the
specialized expertise among those units must be allowed to flourish

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 Strategic Management Process at
Maytag Corporation (1993):
Programs
Programs & Budgets
 Work with Bosch-Siemens to develop joint marketing and
supplier agreements for Hoover appliances
 Analyze and develop Asian markets through current
distributors and licensees and through joint ventures
 Develop new appliances for continental Europe
 Develop TV advertising for Jenn-Air and Magic Chef
 Consolidate production of washers and dryers in dedicated
plants
Budgets
 Prepare budgets for each planned program

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 Strategic Management Process at
Maytag Corporation (1993):
Procedures
Procedures
 Develop procedures for joint purchasing and joint
marketing of Bosch-Siemens with Hoover
 Coordinate marketing, manufacturing, and
purchasing activities of business units through
committees
 Research and development takes place in unit
housing each product line
 Consolidate all advertising under one agency, but
establish internal advertising for each brand category

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 Strategic Management Process at
Maytag Corporation (1993):
Evaluation
Evaluation & Control
& Control
 Require all business units to provide monthly status reports on
sales and costs by product line plus any trends in expenses
 Require all business units to provide annual reports giving
operating revenues, costs, and expenses as well as identifiable
assets in dollars, plus property additions and deletions
 Require all business units to provide quarterly assessments of
competitive activity and overall trends affecting each of their
product lines
 Require all business units to inform corporate headquarters
before proceeding on any financially risky plan

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