BUS 831/HRM 744: Essentials of Strategic Management

 Luke 14: 28
 7th verse of Surah Al-Inshirah

Lecturer: Dr. Vera Ayitey

Morning Devotion
• Luke 14:28-30
• Planning is a continuous and constant activity and
after the end of a period of activity and beginning of a
new one, there will be a need for a new plan.
• So when you have finished your duties, then stand up
and worship (Al-Inshirah, verse 7)
BUS 831/HRM 744: Essentials of Strategic Management
 Strategic management process
 Strategic decision-making
 Benefits and pitfalls of strategic management

Lecturer: Dr. Vera Ayitey

Eisner’s theory
• People will pay a premium price for extraordinary
entertainment.
• We have the necessary resources to create
extraordinary entertainment.
• Therefore, let’s redeploy our resources in a different
way and offer something extraordinary to people.
Strategic Management
• Strategy: A firm’s theory about how to gain competitive advantages.
• A strategic plan is a company’s game plan.
Strategic Management
• The art and science of formulating, implementing, and evaluating
cross-functional decisions that enable an organization to achieve its
objectives.
• A strategic plan results from tough managerial choices among
numerous good alternatives, and it signals commitment to specific
markets, policies, procedures, and operations.
• Strategic management is used synonymously with the
term strategic planning.
• Sometimes the term strategic management is used to
refer to strategy formulation, implementation, and
evaluation, with strategic planning referring only to
strategy formulation.
The Strategic Management Process
The Strategic Management Process
The Strategic Management Process (3 of 12)
Objectives:
• specific, measurable targets
• the things a firm needs to “do” to achieve its mission
• should influence other elements in the strategic management
process
The Strategic Management Process (4 of 12)
External and Internal Analysis
Systematic Examination of the Environment
External Analysis Internal Analysis
• interest rates • human resources
• demographics (knowledge)
• social trends • manufacturing
abilities
• technology
• technology
The Strategic Management Process
Strategic Choice

Example: Stanley Black & Decker

The Strategic Management Process
Strategy Implementation
• how strategies are carried out
• who will do what
• organizational structure and control
• who reports to whom
• how does the firm hire, promote, pay, etc.
The Strategic Management Process
Strategy Implementation
• every strategic choice has strategy implementation
implications
• strategy implementation is just as important as strategy
formulation

A Strategy Is Only As Good As Its Implementation

The Strategic Management Process
Competitive Advantage
Definition: the ability to create more economic value than competitors

• all other elements of the strategic management process are

aimed at achieving competitive advantage
Competitive Advantage
The Ability to Create More Economic
Value Than Competitors
• there must be something different about a firm’s offering vis-à-vis
competitors’ offerings
• if all firms’ strategies were the same, no firm would have a
competitive advantage
• competitive advantage is the result of doing something different
and/or better than competitors
Competitive Advantage

Two Types of Difference

1. Preference for the firm’s output

• people choose the firm’s output over others’

• people are willing to pay a premium

2. Cost advantage vis-à-vis competitors

lower costs of production/distribution

Example: Wal-Mart
Competitive Advantage

The Strategic Management Process

identify and exploit differences that may lead to competitive

advantage
Examples: Apple’s iPod, iPad
Competitive Advantage

Temporary & Sustainable

• competitive advantage typically results in high profits
• profits attract competition
• competition limits the duration of competitive advantage in most
cases

Therefore,
• most competitive advantage is temporary
– competitors imitate the advantage or offer something better
Competitive Advantage

Some competitive advantages are sustainable if:

• competitors are unable to imitate the source of advantage
• no one conceives of a better offering

• In time, even sustainable competitive advantage may

be lost
Competitive Advantage
Competitive Parity
• the firm’s offerings are “average”
• people do not have a preference for the firm’s offering
• the firm does not have a cost advantage over others
• some things that may lead to competitive parity may still be critical to
success
Competitive Advantage
Competitive Disadvantage
• people may have an aversion to the firm’s offering
• the firm may have a cost disadvantage
• a firm may have outdated technology/equipment
• a firm may have a negative reputation

Example: ?????
Competitive Advantage
Measuring Competitive Advantage
Superior Economic Performance Is Viewed as Evidence of Competitive
Advantage
• it is rather easy to see the evidence of competitive
advantage
• measuring the source of the advantage per s e is typically
impossible
• it’s difficult to “measure” technology
Competitive Advantage

Measuring Competitive Advantage

Two Classes of Measures:
1. Accounting Measures

• ROA, ROS, ROE, etc. that exceed industry averages

2. Economic Measures

• earning a return in excess of the cost of capital

Competitive Advantage
Competitive Advantage & The Strategic Management Process
Emergent vs. Intended Strategies
• the strategic management process leads managers to intended
strategies

However,
• conditions often change or new information becomes
available
• managers respond and adopt emergent strategies

Example: ??????
The Strategic Management Process
Summary
• Firms could achieve competitive parity and survive
• They would face a flat demand curve
• Their cost structure would be the industry average
• They would need to adapt their strategy over time just to
survive
• They would fail if they didn’t adapt their strategy
The Strategic Management Process
SM is not about mere survival, it is about thriving—achieving
competitive advantage
• the strategic management process helps managers achieve
competitive advantage
• competitive advantage depends on differences
• strategy is about discovering and exploiting these
differences
The Strategic Management Process
Applying Strategy to Your Career
• a solid understanding of strategy concepts will help set you
apart from other job candidates
• you can use the process to identify and exploit difference
between you and others
• you can use the process to determine if you want to stay
with a company
The Strategic Management Process & Competitive
Advantage
Strategy Matters!
Strategy is often the difference between:
• success and failure, between mediocrity and excellence
• a great manager and average managers
• stumbling through life and moving ahead with purpose
The Strategic-Management Model
• Where are we now?
• Where do we want to go?
• How are we going to get there?
Stages of Strategic Management
• Strategy formulation
• Strategy implementation
• Strategy evaluation
 Stages of Strategic Management

• Strategy Formulation
• developing a vision and mission
• identifying an organization’s external opportunities and
threats
• determining internal strengths and weaknesses
• establishing long-term objectives
• generating alternative strategies
• choosing particular strategies to pursue
Strategy Formulation Decisions
• What new businesses to enter
• What businesses to abandon
• Whether to expand operations or diversify
• Whether to enter international markets
• Whether to merge or form a joint venture
• How to avoid a hostile takeover
Stages of Strategic Management
• Strategy Implementation
• requires a firm to establish annual objectives,
devise policies, motivate employees, and
allocate resources so that formulated
strategies can be executed
• often called the action stage
Stages of Strategic Management
• Strategy Evaluation
• Determining which strategies are not working well
• Three fundamental activities:
• reviewing external and internal factors that are
the bases for current strategies
• measuring performance
• taking corrective actions
Key Terms in Strategic Management
Competitive Advantage
• any activity a firm does especially well compared
to activities done by rival firms, or
• any resource a firm possesses that rival firms
desire.
• A firm must strive to achieve sustained competitive
advantage
Key Terms in Strategic Management
• Strategists
• Individuals most responsible for the success or failure
of an organization
• Help an organization gather, analyze, and organize
information
• Vision and Mission Statements
• A vision statement answers the question “What do
we want to become?”
• A mission statement answers the question “What is
our business?”
Key Terms in Strategic Management
• External Opportunities and Threats
• economic, social, cultural, demographic,
environmental, political, legal, governmental,
technological, and competitive trends and events
that could significantly benefit or harm an
organization
• Internal Strengths and Internal Weaknesses
• an organization’s controllable activities that are
performed especially well or poorly
• determined relative to competitors
Some Opportunities and Threats

• Consumers' expectation for green operations and

products is rising 8 percent annually.
• Internet marketing is growing 11 percent annually in
the United States.
• Commodity food prices increase.
• Oil and gas prices increase.
• Etc...
Key Terms in Strategic Management
• Long-Term Objectives
• specific results that an organization seeks to
achieve in pursuing its basic mission
• long-term means more than one year
• should be challenging, measurable,
consistent, reasonable, and clear
Key Terms in Strategic Management
• Strategies
• the means by which long-term objectives will be achieved
• may include geographic expansion, diversification,
acquisition, product development, market penetration,
retrenchment, divestiture, liquidation, and joint ventures
Key Terms in Strategic Management
• Annual objectives
• short-term milestones that organizations must achieve
to reach long-term objectives
• should be measurable, quantitative, challenging,
realistic, consistent, and prioritized
• should be established at the corporate, divisional, and
functional levels in a large organization
• Policies
• the means by which annual objectives will be achieved
Benefits of Strategic Management
• Strategic management allows an organization to be
more proactive than reactive in shaping its own
future;
• It allows an organization to initiate and influence
(rather than just respond to) activities-and thus to
exert control over its own destiny.
Figure 1.3 Benefits to a Firm That Does
Strategic Planning
Financial Benefits
• Organizations using strategic-management concepts show
significant improvement in sales, profitability, and productivity
compared to firms without systematic planning activities
• High-performing firms tend to do systematic planning to
prepare for future fluctuations in their external and internal
environments
Nonfinancial Benefits

• Enhanced awareness of external threats

• Improved understanding of competitors’ strategies
• Increased employee productivity
• Reduced resistance to change
• Clearer understanding of performance-reward
relationships
Why Some Firms Do No Strategic
Planning
• No formal training in strategic management
• No understanding of or appreciation for the benefits of
planning
• No monetary rewards for doing planning
• No punishment for not planning
• Too busy “firefighting” (resolving internal crises) to plan
ahead
• View planning as a waste of time, since no
product/service is made
Why Some Firms Do No Strategic
Planning
• Laziness; effective planning takes time and effort;
time is money
• Content with current success; failure to realize that
success today is no guarantee for success tomorrow
• Overconfidence
• Prior bad experience with strategic planning done
sometime/somewhere
Pitfalls in Strategic Planning
• Using strategic planning to gain control over decisions and resources
• Doing strategic planning only to satisfy accreditation or regulatory
requirements
• Too hastily moving from mission development to strategy
formulation
• Not communicating the plan to employees, who continue working in
the dark
• Top managers making many intuitive decisions that conflict with the
formal plan
• Top managers not actively supporting the strategic-planning process
• Not using plans as a standard for measuring performance
Pitfalls in Strategic Planning

• Delegating planning to a “planner” rather than involving all

managers
• Not involving key employees in all phases of planning
• Not creating a collaborative climate supportive of change
• Viewing planning as unnecessary or unimportant
• Viewing planning activities as silos comprised of independent
parts
• Becoming so engrossed in current problems that insufficient or
no planning is done
• Being so formal in planning that flexibility and creativity are
stifled
Comparing Business and Military Strategy

• A fundamental difference between military and business

strategy is that business strategy is formulated,
implemented, and evaluated with an assumption of
competition, whereas military strategy is based on an
assumption of conflict
• Both business and military organizations must adapt to
change and constantly improve to be successful
Excerpts from Sun Tzu’s The Art of War Writings
• Strategic planning is a matter of vital importance to the state:
a matter of life or death, the road either to survival or ruin.
Hence, it is imperative that it be studied thoroughly.
• Know your enemy and know yourself, and in a hundred
battles you will never be defeated.
Examples of Employability Skills From studying SM
• Critical thinking
• Collaboration
• Knowledge application and analysis
• Business ethics and social responsibility
• Information technology
• Data literacy
How to Gain and Sustain Competitive Advantage