1 Chapter 1: The Strategic Management Process BA 469 Spring Term, 2007 Prof. Dowling

1 - 2 Why do some organizations succeed while others fail? Strategy –An action managers take to achieve one or more of an organization’s goals Strategic management process –The process by which managers choose a set of strategies that will allow a company to achieve superior performance

1 - 3 Superior Performance and Competitive Advantage Profitability –A measure of a company’s return on its invested capital Superior performance –One company’s profitability relative to that of other companies in the same or similar business or industry

1 - 4 Firm-Specific Performance and Profitability Competitive advantage –A firm’s profitability is greater than the average profitability for all firms in its industry Sustained competitive advantage –A firm maintains competitive advantage for a number of years Business model –Management’s model of how strategy will allow the company to gain competitive advantage and achieve superior profitability

1 - 5 Industry Structure and Profitability Return on Invested Capital in Selected Industries, Data Source: Value Line Investment Survey

1 - 6 Strategic Managers General managers –Responsible for overall company performance or divisional performance Functional managers –Responsible for supervising a particular task or operation

1 - 7 Levels of Strategic Management

1 - 8 The Strategic Planning Process 1.Select the corporate mission and major corporate goals 2.Analyze the external competitive environment to identify opportunities and threats 3.Analyze the organization’s internal environment to identify its strengths and weaknesses 4.Select strategies that build on the organization’s strengths and correct its weaknesses in order to take advantage of external opportunities and counter external threats 5.Implement the strategy

1 - 9 Main Components of the Strategic Planning Process

Mission Statement A description or declaration of why a company is in operation Provides the framework or context within which strategies are formulated Has 3 main components: –Mission or vision –Values or guiding standards that drive and shape the actions and behavior of employees –Major goals or objectives

The Mission or Vision What the company is trying to achieve over the medium to long term The Boeing Company in 2016: –“People working together as a global enterprise for aerospace leadership” Microsoft: –“To empower people through great software, any time, any place, on any device”

Abell’s Framework for Defining the Business Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7.

Values How managers and employees should conduct themselves Organizational culture –The set of values, norms, and standards that control how employees work to achieve an organization’s mission and goals –Often seen as a source of competitive advantage In high-performing organizations, values respect the interests of key organizational stakeholders.

Values at Nucor “Management is obligated to manage Nucor in such a way that employees will have the opportunity to earn according to their productivity.” “Employees should be able to feel confident that if they do their jobs properly, they will have a job tomorrow.” “Employees have the right to be treated fairly and must believe that they will be.” “Employees must have an avenue of appeal when they believe they are being treated unfairly.”

Values at Texas Instruments Source: Accessed 10/25/02. Copyright © Texas Instruments Incorporated. All rights reserved. Reprinted by permission.

Major Goals and Objectives Goal: A desired future state or objective Four main characteristics of well-constructed goals: –Precise and measurable –Address crucial issues –Challenging but realistic –Specify a time period

Profitability Maximizing returns to shareholders Importance of balancing short-term returns with long-term profitability Pressures to maximize short-term profitability may result in unethical behavior

External and Internal Analysis External analysis –Identify strategic opportunities and threats Industry environment National environment Socioeconomic or macroenvironment Internal analysis –Identify organizational strengths and weaknesses –Sources of competitive advantage: superior efficiency, quality, innovation, and responsiveness to customers

SWOT Analysis and the Business Model Identifying strategies to align a company’s resources and capabilities to its environment in order to create and sustain a competitive advantage –Functional-level strategy –Business-level strategy –Global strategy –Corporate-level strategy

Strategy Implementation After choosing strategies, managers must put them into action. The feedback loop—strategy is ongoing. Managers must monitor and reevaluate for the next round of strategy formulation and implementation.

Strategy as an Emergent Process Strategy making in an unpredictable world Strategy making by lower-level managers Serendipity and strategy

Intended and Emergent Strategies Intended strategies –Strategies an organization plans to put into action Emergent strategies –Unplanned strategies Realized strategy –The product of whatever intended strategies are actually put into action and of any emergent strategies

Emergent and Deliberate Strategies Source: Adapted from H. Mintzberg and A. McGugh, Administrative Science Quarterly, Vol. 30. No. 2, June 1985.

Strategic Planning in Practice Scenario Planning Involving Functional Managers –Avoiding the ivory tower approach –Perceiving procedural justice Strategic Intent –Avoiding the fit model, which focuses too much on the current state –Setting ambitious goals that stretch a company and finding ways to build to attain those goals

Strategic Leadership Vision, eloquence, and consistency Commitment Being well informed Willingness to delegate and empower The astute use of power Emotional intelligence

Challenges to Strategic Decision Making Cognitive biases –Prior hypothesis bias –Escalating commitment –Reasoning by analogy –Representativeness –Illusion of Control Hubris hypothesis Groupthink