Strategic Management Defined: Set of managerial decisions and actions that determines the long-run performance of a firm.

STRATEGIC MANAGEMENT Compiled By Majid Murad & Shabeeb Ahmed Gill

Strategic Decision Making Strategic Decisions Rare Consequential Directive

Basic financial planning Forecast-based planning Externally-oriented planning (strategic) Strategic management Four Phases of Strategic Management

Strategic Management Benefits: 1. Clearer sense of long term vision (strategic direction) for the firm 2. Sharper focus on what is strategically important 3. Improved understanding of a rapidly changing environment

Challenges to Strategic Management Electronic Commerce Use of the Internet to conduct business transactions Globalization Internationalization of markets and corporations Global (worldwide) markets rather than national markets

Strategic Management Process Strategic Management process is composed of: Environmental Scanning Strategic Formulation Strategic Implementation Evaluation and Control

Environmental Scanning Defined: The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the firm.

Environmental Scanning Identify strategic factors SWOT Analysis Strengths, Weaknesses Opportunities, Threats Internal Environment Strengths & Weaknesses Within the organization but not subject to short-run control of management External Environment Opportunities & Threats External to the organization but not subject to short-run control of management

Environment Composed of: Internal Environment External Environment Task Environment Societal Environment

Internal Environment Composed of: Structure Culture Resources

Structure Refers to the way a firm is organized in terms of communication, authority, and workflow Basic Forms of structures: Simple structure Functional structure Divisional structure

Basic Organizational Structures: Simple and Functional I. Simple Structure II. Functional Structure Owner-Manager Workers Top Management ManufacturingSalesFinancePersonnel

Basic Structures of Corporations: Divisional III. Divisional Structure* ManufacturingFinanceManufacturingFinance Top Management Product Division AProduct Division B *Conglomerate structure is a variant of the division structure. SalesPersonnelSalesPersonnel

Internal Environment Composed of: Culture Structure Resources

Culture Refers to the pattern of beliefs, expectations, and values shared by a firm’s employees Distinct attributes of organizational culture: Cultural intensity Cultural integration

Cultural intensity Refers to the degree in which the members of each unit (department or division) in the company subscribe to the same values or norms. As a result, employees in a unit with intensive culture tend to behave the same. In general, older organizations tend to display more intense culture.

Cultural integration Refers to the degree in which units (departments and divisions) across a company tend to subscribe to the same set of values and norms. Units within a companies with integrated culture tend to be more uniformed with other units. As a results, the units in a company with an integrated culture tend to lack subcultures of their own.

Internal Environment Composed of: Resources Culture Structure

Resources Refers to the assets of the firm including physical assets, skills and knowledge within the functional areas

Task Environment Composed of: Groups in environment that directly affect or are affected by the organization’s operations (often refer to as industry) Competition Suppliers Customers (Buyers) Other interest Groups

Societal Environment Composed of: General forces in environment Economic Forces Sociocultural Forces Technological Forces Political-Legal Forces

SWOT Analysis Internal Environment: Strengths Weaknesses External Environment: Opportunities Threats

Four Basic Elements Basic Model of Strategic Management

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

SWOT Analysis Internal Environment: Strengths Weaknesses External Environment: Opportunities Threats

Strategy Formulation Defined: Development of long-range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses. Composed of: Mission Objectives Strategies Policies

Strategy Formulation Mission Statement Purpose or reason for the organization’s existence Should include the firm’s products / services and it’s target market(s) Who we are, what we do, what we’d like to become Promotes shared expectations among employees Communicates a public image to stakeholders

Strategy Formulation Maytag Corporation Mission Statement To improve the quality of home life by designing, building, marketing, and servicing the best appliances in the world.

Strategy Formulation Objectives The end results of planned activity WHAT is to be accomplished Time in which to accomplish it (WHEN) Objectives should be quantified when possible

Strategy Formulation Goals vs. Objectives A goal is an open-ended statement of what one wants to accomplish with no quantification of what is to be achieved and/or no time criteria for completion.

Goals & Objectives Corporate goals and objectives include: Profitability (net profits) Growth (increase in total assets, etc.) Utilization of resources (ROE or ROI) Market leadership (market share)

Strategies Defined: A strategy of a corporation forms a comprehensive master plan stating HOW the corporation will achieve its mission and objectives.

Strategies 3 Types of Strategy Corporate strategy Business strategy Functional strategy

Corporate Strategies Corporate strategies deal with corporation’s overall direction and its management of its businesses

Corporate Strategies Corporate Strategy Growth Stability Retrenchment

Growth Strategies Concentration Horizontal integration Vertical integration Diversification Concentric diversification Conglomerate diversification Any of these four growth strategies may be though internal development or external acquisitions, mergers, or joint ventures.

Corporate Strategies Corporate Strategy Stability Growth Retrenchment

Stability Strategies Pause Proceed-with-caution No change Profit

Corporate Strategies Corporate Strategy Retrenchment Stability Growth

Retrenchment Strategies Turnaround Captive Divestment Bankruptcy Liquidation

Business Strategy Emphasizes on improving the competitive position of a firm’s strategic business Also referred to as competitive strategies

Porter’s Competitive Strategies Competitive Advantage: Lower cost strategy Design, produce, market more efficiently than competitors Differentiation strategy Unique and superior value in terms of product quality, features, service

Porter’s Competitive Strategies Competitive Scope: Refers to the Breadth of the company’s target market Compete head to head in large market? Focus on niche?

Porter’s Generic Competitive Strategies

Porter’s Competitive Strategies Cost Leadership: Low-cost competitive strategy Aimed at broad mass market Aggressive construction of efficient-scale facilities Cost reductions/Cost minimization

Porter’s Competitive Strategies Differentiation: Broad mass market Unique product or service Charge premiums Lower customer sensitivity to price

Porter’s Competitive Strategies Cost focus: Low cost competitive strategy Focus on particular buyer group or market Niche focused Seek cost advantage in target market

Porter’s Competitive Strategies Differentiation focus: Focus on particular group or geographic market Seek differentiation in targeted market segment Serve special needs of narrow target market

Functional Strategy To optimize resource productivity

Policies Defined: Broad guidelines for decision making that link the formulation of strategy with its implementation.

Strategy Implementation Strategy Implementation Programs Budgets Procedures

Programs A program is a statement of activities or tasks needed to accomplish a single-use plan

Budgets A budget is a statement of a corporation’s program in dollar terms

Procedures Procedures refer to a system of sequential steps or techniques that describe in detail how to perform a particular activity or task