Copyright © 2001 Houghton Mifflin Company. All rights reserved. Chapter 1 The Strategic Management Process Strategic Charles W. L. Hill Management Gareth R. Jones Fifth Edition PowerPoint Presentation by Charlie Cook An Integrated Approach

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-2 Overview Why do some firms succeed while others fail?  A central objective of strategic management is to learn why this happens. What is strategy?  An action a company takes to attain superior performance. What is the strategic management process?  The process by which managers choose a set of strategies for the enterprise to pursue its vision.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-3 Defining the Mission and Setting Top-Level Goals External Analysis of Opportunities and Threats Internal Analysis of Strengths and Weaknesses Selection of Appropriate Strategies Implementation of Chosen Strategies Strategic Planning Rational planning by top management? Basic Strategic Planning Model

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-4 FIGURE 1.1 The Main Components of the Strategic Planning Process

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-5 Mission and Goals Mission  Sets out why the organization exists and what it should be doing. Major goals  Specify what the organization hopes to fulfill in the medium to long term. Secondary goals  Are objectives to be attained that lead to superior performance.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-6 External Analysis Identify strategic opportunities and threats in the operating environment. MacroenvironmentNational Immediate (Industry)

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-7 Internal Analysis Identify strengths  Quality and quantity of resources available  Distinctive competencies Identify weaknesses  Inadequate resources  Managerial and organizational deficiencies

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-8 Strengths and Weaknesses Opportunities and Threats (SWOT Analysis) Strategic Choice Business Functional Global Corporate SWOT and Strategic Choice

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-9 Business-Level Strategies Cost leadership  Attaining, then using the lowest total cost basis as a competitive advantage. Differentiation  Using product features or services to distinguish the firm’s offerings from its competitors. Market niche focus  Concentrating competitively on a specific market segment.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-10 Functional-Level Strategies Focus is on improving the effectiveness of operations within a company.  Manufacturing  Marketing  Materials management  Research and development  Human resources

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-11 Global-Level Strategies MultidomesticInternationalGlobalTransnational

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-12 Corporate-Level Strategies Vertical integration Diversification Strategic alliances Acquisitions New ventures Business portfolio restructuring

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-13 Strategy Implementation Designing organizational structure Designing control systems  Market and output controls  Bureaucratic controls  Control through organizational culture  Rewards and incentives Matching strategy, structure, and controls  Congruence (fit) among strategy, structure, and controls Structure Strategy Controls

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-14 Managing Strategic Change The only constant is change. Success requires adapting strategy and structure to a changing world. The feedback loop in strategic planning. Corporate Functional Business Operational

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-15 Strategic Managers General managers  Responsible for the overall (strategic) performance and health of the total organization. Operations managers  Responsible for specific business functions or operations.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-16 Strategic Managers for All Levels FIGURE 1.2

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-17 Strategic Leadership Vision, eloquence, and consistency Commitment to the vision Being well informed Willingness to delegate and empower Astute use of power Emotional intelligence

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-18 Strategy as an Emergent Process Strategy making in an unpredictable world  Creates the necessity for flexible strategic approaches. Strategy making by lower-level managers  Strategy evolves through autonomous action. Serendipity and strategy  Accidental discoveries and happenstances can have dramatic effects on strategic direction. Intended and emergent strategies  Realized strategies are combinations of intended and emergent strategies.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-19 FIGURE 1.3 Intended and Emergent Strategies Source: Reprinted from “Strategy Formation in an Adhocracy,” by Henry Mintzberg and Alexandra McGugh, published in Administrative Science Quarterly, Vol. 30, No. 2, June 1985, by permission of Administrative Science Quarterly.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-20 t Some illustrations © Honda entering U.S. motorcycle market in 1960s and 70s. Honda admitted that they “…had no strategy other than the idea of seeing if we could sell something in the United States.” © General Mills’ cereal business (see the following slides). © maintain premium pricing with coupons. Strategy: A Pattern in a Stream of Decisions

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-21 Strategy Formulation as a Product of Intended & Emergent Processes

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-22 Strategy Formulation Activities at General Mills’ Cereal Business

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-23 Strategy Formulation Activities at General Mills’ Cereal Business

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-24 FIGURE 1.4 The Strategic Management Process for Intended and Emergent Strategies

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-25 Strategic Planning in Practice Planning under uncertainty  Scenario planning for dynamic environmental change Ivory tower planning  Lack of contact with operational realities  The importance of involving operating managers  Procedural justice in the decision-making process  Engagement, explanation, and expectations Planning for the present: Strategic Intent  Recognition of the static nature of the strategic fit model  Strategic intent in focusing the organization on winning by achieving stretch goals

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-26 Improving Strategic Decision Making Cognitive biases systematically influence the rationality of decision makers. FIGURE 1.5

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-27 Groupthink and Strategic Decisions Pitfalls of groupthink  Failing to question underlying assumptions.  Coalescing around a single person or policy.  Filtering out conflicting information.  Developing after-the-fact rationalizations.  Having an emotional (nonobjective) commitment to an action.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.1-28 Techniques for Improving Decision Making Two decision- making processes that counteract cognitive biases and groupthink. FIGURE 1.6