Formulation, Implementation and Evaluation Strategic Management Formulation, Implementation and Evaluation

Course Objectives Understand the Strategic management concepts. How to be a strategic thinker . How to create a competitive advantages to your business. Develop students’ skills in strategy design, implementation and evaluation. How culture differences affect management. Develop the knowledge on the influence of social responsibility on business strategy. Prentice Hall, 2008

Teaching Techniques Lecturing and discussions. Using cases in teaching : Real cases and problem solving. Presentations from students. Group work, teamwork and assignments. Prentice Hall, 2008

Course Contents Concepts and definitions: Strategy, Strategic management, strategic planning, Importance of strategic management, Internal and external environment analysis, competitive advantages, stakeholders, social responsibility and so on. Tools will be used in analysis, e.g., SWOT, value chain, resource – based approach, industrial analsis. Prentice Hall, 2008

Course Contents continue Types of Strategies: Corporate-Level Strategies, Business Unit Strategies, Functional/operational Strategies. Strategy Formulation: Business Mission, strategy analysis and choice, corporate objectives and strategies. Strategy Implementation: Organizational Structure, assessment of Organizational Structure, restructuring and reengineering, short-term objectives and programs and activities. Prentice Hall, 2008

Course Contents continue Strategy Evaluation and control: processes of evaluation, measuring performance and corrective action. Global Issues in strategic management: global competition, managing cross-cultures. Prentice Hall, 2008

Strategic Management Defined Art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. Strategy “Top Management’s plan to attain outcomes consistent with the organization’s mission and goals” (Wright, Kroll and Parnell,1998) Prentice Hall, 2008

Strategic management A continuous process of change and modification: intended strategy, realized strategy. Prentice Hall, 2008

Strategic Management Defined Set of managerial decisions and actions that determines the long-run performance of a firm. It includes environmental scanning, strategy formulation, strategy implementation, and evaluation and control. Prentice Hall, Inc. © 2008 Prentice Hall 2006

Internationalization of markets and corporations Basic Concepts of Strategic Management Globalization Internationalization of markets and corporations Global (worldwide) markets rather than national markets International consideration have led to the staregic alliance between BA and American Airlines. Prentice Hall, Inc. © 2009 Prentice Hall 2006

Use of the Internet to conduct business transactions Basic Concepts of Strategic Management Electronic Commerce Use of the Internet to conduct business transactions Basis for competition on a more strategic level rather than traditional focus on product features and costs. AMR Research indicated that industry leaders are in the process of moving 60-100% of their B2B transactions to the internet. Prentice Hall, Inc. © 2009 Prentice Hall 2006

Electronic Commerce – Trends Basic Concepts of Strategic Management Electronic Commerce – Trends Forcing company transformation to use internet in their business. Market access & branding changing – disintermediation of traditional distribution channels; dealing direct with end consumer. Balance of power shift to consumer: customer became more knowledgeable. Competition changing; exploiting the interned to become more innovative. Prentice Hall, Inc. © 2009 Prentice Hall 2006

Electronic Commerce -- Trends Basic Concepts of Strategic Management Electronic Commerce -- Trends Pace\speed of business increasing; time is compressed into ‘dog years’. Internet purchasing beyond traditional boundaries. Separation between business –supplier-customer became blurred. Knowledge key asset – source of competitive advantage Prentice Hall, Inc. © 2009 Prentice Hall 2006

Strategy Implementation Three-Stage Process Strategy Formulation Strategy Implementation Strategy Evaluation Prentice Hall, 2008

Opportunities & Threats Strengths & Weaknesses Alternative Strategies Strategy Formulation Vision & Mission Opportunities & Threats Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection Prentice Hall, 2008

Strategy Formulation Issues include: What new businesses to enter What businesses to abandon How to allocate resources Expand operations or diversify Enter international markets Merge or form joint venture Avoidance of hostile takeover Prentice Hall, 2008

Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation Prentice Hall, 2008

Strategy Implementation Action Stage of strategic management: Most difficult stage Mobilizing employees and managers Interpersonal skills are critical Consensus on pursuing goals Prentice Hall, 2008

Performance Measurement Strategy Evaluation Internal Review External Review Performance Measurement Corrective Action Prentice Hall, 2008

Strategy Evaluation Final stage of strategic management: All strategies subject to future modification Success today is no guarantee of success tomorrow Success creates new and different problems Complacency\satisfaction leads to demise \end. Prentice Hall, 2008

Prime Task of Strategic Management According to Peter Drucker… The prime task is to think through the overall mission of a business Ask the question: What is our Business? Prentice Hall, 2008

Integrating Intuition and Analysis The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty. Prentice Hall, 2008

Integrating Intuition and Analysis Intuition based on: Past experiences Judgment Feelings Useful for decision making Conditions of great uncertainty Conditions with little precedent/guide Prentice Hall, 2008

Integrating Intuition and Analysis Intuition and judgment Management at all levels Analyses are influenced Analytical thinking and intuitive thinking Complement each other Prentice Hall, 2008

Adaptation to Change Organizations must monitor events On-going process Internal and external events Timely changes Prentice Hall, 2008

Adaptation to Change Rate and magnitude of changes Increasing dramatically E-commerce Demographics Technology Merger-mania (fashion) Effective Adaptation Long-run focus Prentice Hall, 2008

Adaptation to Change Key strategic-management questions: What kind of business should we become? Are we in the right fields? Should we reshape our business? What new competitors are entering our industry? What strategies should we pursue? How are our customers changing? Prentice Hall, 2008

Key Terms Strategists Most responsible for success or failure of an organization Various job titles: Chief executive officer President Owner Chair of the Board Executive Director Entrepreneur Prentice Hall, 2008

Strategic-Management Model Strategic-Management Process – Dynamic and Continuous More formal in larger organizations Prentice Hall, 2008

Benefits of Strategic Management Proactive in shaping organization’s future Initiate and influence activities Formulate better strategies Systematic, logical, rational approach Prentice Hall, 2008

Benefits of Strategic Management Financial benefits Improvement in sales Improvement in profitability Improvement in productivity Prentice Hall, 2008

Benefits of Strategic Management Non-Financial benefits Enhanced awareness of external threats Improved understanding of competitors’ strategies Increased employee productivity Reduced resistance to change Understanding of performance-reward relationships Enhances problem-prevention capabilities Prentice Hall, 2008

Benefits of Strategic Management Identification of opportunities Objective view of management problems Improved coordination and control Minimizes adverse conditions and changes Decisions to better support objectives Effective allocation of time and resources Internal communication among personnel Prentice Hall, 2008

Benefits of Strategic Management Integration of individual behaviors Clarifies individual responsibilities Encourages forward thinking Encourages favorable attitude toward change Discipline and formality to the management of the business Prentice Hall, 2008

Why Some Firms Do No Strategic Planning Poor reward structures Fire-fighting Waste of time Too expensive Laziness Content with success Prentice Hall, 2008

Why Some Firms Do No Strategic Planning (Cont’d) Fear of failure Overconfidence Prior bad experience Self-interest Fear of the unknown Suspicion Prentice Hall, 2008

4 Phases of Strategic Management Basic Concepts of Strategic Management 4 Phases of Strategic Management Firms evolve through the following faces of strategic management. Basic financial planning Forecast-based planning Externally-oriented planning Strategic management Prentice Hall, Inc. © 2008 Prentice Hall 2006

Basic Concepts of Strategic Management Basic financial planning: initiate some planning when they requested to set up their budgets; considers activities for one year. Forecast-based planning: consider projects for more than a year. The time horizon is usually 3-5 years. Extrapolate current trends in the future. Externally-oriented planning: conduct strategic planning by top management and they leave implementation to low level. Strategic management: planning by forming a team from all levels in the company. Prentice Hall, Inc. © 2008 Prentice Hall 2006

Organization “fit” with environment Organizational Adaptation Organization “fit” with environment Theory of population ecology\biology: org. unable to adapt to changing conditions, because lack of interest in change. Institution theory: org. can adapt to changes by imitating others. Strategic choice perspective: not only adapt to changes but also it can reshape its environment. Organizational learning theory: Prentice Hall, Inc. © 2008 Prentice Hall 2006

Strategic flexibility Organizational Adaptation Strategic flexibility Demands long-term commitment to development of critical resources Demands firm become a learning organization Prentice Hall, Inc. © 2008 Prentice Hall 2006

Learning Organizations An organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights Prentice Hall, Inc. © 2008 Prentice Hall 2006

Triggering events to change in strategy New CEO External intervention e.g., from banks. Threats of change in ownership. Performance gap. Strategic inflection point. Prentice Hall, 2008

Rare: unusual, no precedent to follow. Strategic Decision Making Strategic Decisions Rare: unusual, no precedent to follow. Consequential : require substantial resources and commitment from all. Directive: set precedent for future action. Prentice Hall, Inc. © 2008 Prentice Hall 2006

Strategic Decision Making Top managers tend to use one of four modes/approach of strategy formulation: Mintzberg’s Modes Entrepreneurial mode Adaptive mode Planning mode Logical incrementalism Prentice Hall, Inc. © 2008 Prentice Hall 2006

Mintzberg’s Modes Entrepreneurial mode: the strategy is made by powerful individual. The focus on opportunities. Adaptive mode: using reactive solution rather than proactive. Planning mode: it uses reactive and proactive mode. Data gathering and analysis and select strategies. Logical incrementalism: strategy is set based on a series of incremental commitment rather than through global formulation of total strategies. This suitable when environment is changing rapidly. Prentice Hall, 2008

5 Elements of Good Strategy Hambrick and Fredrickson – Good Strategy 5 Elements of Good Strategy Arenas Vehicles Differentiators Staging Economic logic Prentice Hall, Inc. © 2008 Prentice Hall 2006