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Weru Joshua Nyirasoni Lois Habinshuti Benjamin Ndayisaba Willy

Definition
y Strategic management is a set of decisions and

actions that result in the formulation and implementation of plans designed to achieve company objectives. y Strategy is a large-scale, future oriented plans for interacting with the competitive environment to achieve company objectives. y Strategy provides a framework of managerial decisions.

Critical Tasks in Strategic Magt


y Formulation of vision & Mission statements y Analysis of internal conditions and capabilities y External

environment analysis including competitive and general contextual factors y Identify alternative strategic choices y Identify the most desirable in light of its resources and external environment y Select long-term objectives and grand strategies

Contd
y Develop annual objectives and short-term

strategies y Implement strategic choices y Evaluate success of the strategic process

Dimensions of Strategic Decisions


y Strategic issues: y Requires top-mgt decisions /involvement y Require large amounts of the firms resources y Often affect the firms long-term propensity y Future oriented y Usually have multifunctional/multi-business consequences y Require considering the firms external environment

The three Levels of Strategy


y The corporate level comprising of board of

directors, chief executive and administrative officers. y Business level comprising of business and corporate managers at SBUs. y Functional level comprised of managers of product, geographic, and functional areas.

Characteristics of Strategic management Decisions


y Decisions at corporate level y Are of more value, more conceptual and less concrete. y Have greater risk, cost and profit potential y Need greater flexibility and longer time horizon y Functional level decisions y Relatively concrete and quantifiable y Receives critical attention and analysis

Contd
y Business level decisions y Help bridge decisions at corporate and functional level y Are less costly, risky, and potentially profitable than corporate level decisions

Formality in Strategic Management


y Degree to which participant, responsibilities,

authority and discretion in decision making is specified. They include: y Entrepreneurial mode: associated with ownermanager of small firms. y Planning mode: associated with large firms that operate under comprehensive, formal planning system. y Adaptive mode: associated with medium-sized firms

Benefits of Strategic management


y Enhance a firms ability to prevent problems y Group decisions drawn from best alternatives y Employees involvement in strategy formulation

improves their understanding and motivation y Gaps and overlaps in activities are reduced y Resistance to change is reduced

Components of strategic model


y Company mission y Internal analysis y External analysis y Strategic analysis and y Short-term objectives y Functional tactics y Policies that empower

action choice y Strategic control and y Long-term objectives continuous improvement y Generic and grand strategies

Company Mission

What is a company mission?


y Enduring statement of a firms intent. y Embodies business philosophy, image sought,

principal products or service and primary customer needs to satisfy. y It answers the question: what business we are in?

Formulating a Mission
y The mission should state the basic type of

product or service to be offered, the primary markets or customer groups to serve; the technology to be used in production or delivery; the firms fundamental concern for survival through growth and profitability; the firms managerial philosophy; the public image the firm seeks; and self-concept those affiliated with the firm should have of it.

Vision Statement
y The vision statement is sometime developed to

express the aspirations of the executive leadership. y It presents the firms strategic intent that focuses the energies and resources of the company on achieving a desirable future. y The vision and mission are frequently combined into a single statement.

Board of Directors
y The group of stock-holder representatives and

strategic managers responsible for overseeing the creation and accomplishment of company mission. y In the current business environment, they are accepting the challenge of shareholders and other stakeholders to become actively in establishing the strategic initiatives of the company that they serve.

Corporate Social Responsibility and Business Ethics

The stakeholder approach to social responsibility


y In

defining company mission, strategic managers must recognize the legitimate rights of the firms claimants. y These include not only the stockholders and employees but also outsiders affected by the firms actions. (stakeholders) y The mission statement should incorporate:
y Identified stakeholders

Cont d
y Understanding of stakeholders claims y Reconciliation of the claims and assignment of

priorities to them y Coordination of the claims with other elements of the company mission

Types of Social Responsibility


responsibilities: The duty of managers, as agents of the company owners, to maximize stakeholders wealth. y Legal responsibilities: Firms obligations to comply with laws regulating business activities. y Ethical responsibilities: The strategic managers notion of right and proper business y Discretionary responsibilities: Responsibilities assumed by a business, such as public relations, good citizenship, and full corporate responsibility
y Economic

Corporate Social Responsibility and Profitability


y Corporate social responsibility is the idea that

business has a duty to serve society in general as well as the financial interest of stockholders. y CSR should be viewed as a component in the decision-making process of business that must determine, among other objectives, how to maximize profits. y CSR costs are more than offset in the long-run by an improved company image and increased community goodwill.

Corporate Social Responsibility Today


y Three broad trends are driving businesses to

adopt CSR frameworks. These include;


y The resurgence of environmentalism y Increasing

buyer power with consumers becoming more interested in buying products from socially responsible companies. y The globalization of business: CSR has become more complex as companies increasingly transcend national borders.

CSR s Effect on the Mission Statement


y In developing mission statements, managers

must identify all stakeholder groups and weigh their relative rights and abilities to affect the firms success. y Social Audit attempts to measure a companys actual social performance against its social objectives.

The nature of Ethics in Business


y Ethics is the moral principles that reflect

societys beliefs about the action of an individual or group that are right or wrong. y Central to the belief that companies should be operated in a socially responsive way for the benefit of all stakeholders is the belief that managers will behave in an ethical manner.

The Future of CSR


y CSR is firmly and irreversibly part of the

corporate fabric. Managed properly, CSR programs can confer significant benefits to participants in terms of reputation, hiring, motivation, and retention and as a means of building and cementing valuable partnerships. y The challenge for management, then, is to know how to meet the companys obligations to all stakeholders without compromising the basic need to earn a fair return of its owners.

The Firms External Environment

External Environment Analysis


y External environment refers to factors beyond

the control of the firm that influence its choice of direction and action, organizational structure and internal processes. y These factors can be divided into three;
y Remote environment y Industry environment y Operating environment

Remote Environment
y Comprises of factors that originate beyond, and

usually irrespective of, any single firms operating situation;


y Economic y Social y Political y Technological y Ecological factors

Contd
y Economic factors: these relate to nature and

direction of economy.
y Consumption patterns, availability of credit,

disposable income, interest rates, inflation rates and growth trend of GDP.

y Social

factors: involves beliefs, values, attitudes, opinions and lifestyles of persons in firms external environment.
y Change in social attitudes leads to change in

demand of various products.

Contd
y Political

factors: defines the legal and regulatory parameters within which the firm operates.
y Antitrust laws, tax programs, minimum wage

legislation, pollution and pricing policies etc

y Technological factors: a firm must adapt to

change in technology to avoid obsolescence and promote innovation.


y Internet and

particularly e-commerce have changed the way of doing business.

Contd
y Ecological factors: relate to threats to natural

environment.
y Ecology is the relationship among human

beings and other living things and the air, soil and water that supports them. Pollution is threat to ecology due to human activity. y Ecological concerns are global warming, loss of habitant and biodiversity, as well as air water and land pollution.

Industry Environment
y Refers to general conditions for competition

that influence al businesses that provide similar products and services. y The five forces driving industry competition according to Porter are; y Determinants of entry y Determinants of rivalry y Determinants of supplier power y Determinants of buyer power y Determinants of substitution threat

Barriers to Entry
y Economies of scale deter entry by forcing the

entrants to come in large scale or accept a cost advantage. y Product differentiation creates a barrier by forcing entrants to spend heavily to overcome customer loyalty. y Capital requirements creates a need to invest large financial resources in order to compete. y Cost advantages independent of size

Contd
y Access to distribution channels: a new food

product must displace others from the supermarket shelf via price breaks, promotions or intense selling efforts. y Government policy: can limit or even close entry to industry.

Powerful Buyers
y Can squeeze profitability out of an industry. A

supplier group is powerful if:


y Dominated by few companies y Product is unique y Not obliged to contend with other products y Industry is not an important customer to the

supplier group

Substitute Products
y They limit the potential of the industry unless it

can upgrade the quality of the product or differentiate them.

Powerful Buyers
y Customers can drive down prices or demand

high quality if:


y Purchases in large volumes y Products are undifferentiated or standard y Earns low profits y They buyer pose a threat of integrating

backward y Product do not save buyer money

Industry Analysis and competitive Analysis


y The firms executives need to address four

questions:
y What are boundaries in the industry? y What is the structure of the industry? y Which firms are our competitors? y What are the major determinants of

competition?

Operating environment
y These are factors in the immediate competitive

situation that affect a firms success in acquiring needed resources. y These factors are:
y Firms competitive position y Composition of its customers y Its reputation among supplier and creditors y Ability to attract capable employees

Contd
y Competitive position: includes market share,

bread the of product line, relative product quality, financial position, effectiveness of sales distribution, price competitiveness, technological position among others. y Customer profiles: include geographical, demographic, psychographic and buyer behavior. y Suppliers and creditors : dependable relationship between the firm, creditors and the supplier is essential. Other factors include reputation and human resources

Conclusion
y Assessing the potential impact of changes in

external environment offers a real advantage. y It enables decision makers to narrow the range of the available options and to eliminate options that are clearly inconsistent with the forecast opportunities. y It generally leads to the elimination of all but the most promising options.