© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 1 Session 1 History and Overview of Strategic Management

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 2 Session Objectives To Develop an Understanding of the (brief) History of Strategic Management. To Develop a Conceptual Understanding of the Paradigm Shift from Business Policy to Strategic Management

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill Colleges of Business Administration Very young compared to philosophy, science, religion, literature… So we’re still trying to figure out the right way to teach students how to be effective business administrators For example – right now we have major disagreements and issues regarding ethics and leadership among universities worldwide 3

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill What is the best model? Ford Foundation study of “best practices” of b-schools during the late 1940s found Need to develop a multi-disciplinary understanding of Business Ergo a capstone course that introduces accountants to marketing, marketers to operations, production managers to human resources… 4

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill This capstone course was most often called Business Policy at that time… So that name has stuck even though the way we attempt to achieve this integrative perspective through the capstone course has evolved The business policy model has been replaced by the strategic management model 5

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 6 Word for the Day Paradigm We have experienced a paradigm shift over the past 60 years from the business policy paradigm to the strategic management paradigm

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 7 What is the First “Strategy” for any Business? It’s that Key Idea in the Entrepreneur’s mind for Satisfying a societal/marketplace need by Providing/producing a product/service that will Yield an excess of price over cost of its provision that Incents the provider to continue/expand its delivery (Capitalism 101)

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill The Business Policy Model would then Focus on becoming as efficient as possible in the development and delivery of the product or service. What’s Missing in this Paradigm? The effectiveness issue Focuses on doing things right but not whether the business is doing the right thing The entrepreneurial aspect of the business Must start with the health of the key idea 8

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill So under the BP model IBM would be the most efficient manufacturer of time clocks Disney would be the most efficient producer of animated (mouse oriented) cartoons Seven Eleven would be a well run dairy product provider Radio Shack would produce leather goods Winthrop would provide excellent training for women in teaching and home economics (Normal and Industrial) 9

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill So we must start with the health of the key idea(s) Are we doing the right things? 10

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 11 WHAT IS THE LIFE EXPECTANCY OF THESE KEY IDEAS? LONGER OR SHORTER TODAY THAN DURING THE MID 20 TH CENTURY?

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 12 A MORE RATIONAL PARADIGM WOULD BEGIN BY CONSIDERING THE HEALTH OF THE BUSINESS’S KEY IDEA OR KEY IDEAS THAT’S STRATEGIC MANAGEMENT

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill Strategic MGMT is Multi-Disciplinary Integrative with input from an understanding of the interworkings of finance, accounting, marketing, research and development, human resources, operations, information management,… These are the functional specialties that contribute to the general management of the firm. You have studied these fundamentals separately. 13

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 14 What is Strategy? Large-scale, future-oriented plan for interacting with competitive environment to achieve objectives Company’s “game plan” Framework for managerial decisions

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 15 SO WE WILL NOT TOTALLY ABANDON THE NOTION OF BUSINESS POLICIES – THEY ARE IMPORTANT BUT WE WILL NOT CONSIDER POLICIES (WHICH WE WILL COME TO REFER TO AS FUNCTIONAL STRATEGIES/POLICIES) UNTIL WE’VE ESTABLISHED THAT WE ARE DOING THE RIGHT THINGS EFFECTIVENESS BEFORE EFFICIENCY