The Basics of Strategic Management

Derived from The Greek word ‘strategtia’ Means are and science of directing military forces. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Management –Defined Art & science of formulating, implementing, and evaluating, cross- functional decisions that enable an organization to achieve its objectives Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Purpose of Strategic Management To exploit and create new and different opportunities for tomorrow Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Management In essence, the strategic plan is a company’s game plan Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Benefits of Strategic Management Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Benefits of Strategic Management Nonfinancial Benefits Enhanced awareness of threats Improved understanding of competitors’ strategies Increased employee productivity Reduced resistance to change Clearer understanding of performance-reward relationship Enhanced problem-prevention capabilities Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

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

4 Stages of the Strategic Management Process Strategy formulation . Strategy analysis and choice. Strategy implementation. Strategy evaluation.

Strategy Formulation The process of developing long-range plans to deal effectively with environmental opportunities and threats in light of corporate strengths and weaknesses. Composed of: Mission Vision Objectives Strategies Policies

Strategy Formulation Vision & Mission External Opportunities & Threats Internal Strengths & Weaknesses Long-Term Objectives Alternative Strategies Strategy Selection Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Issues in Strategy Formulation Businesses to enter Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Implementation Annual Objectives Policies Employee Motivation Resource Allocation Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Implementation Steps Developing a strategy-supportive culture Creating an effective organizational structure Redirecting marketing efforts Preparing budgets Developing and utilizing information systems Linking employee compensation to organizational performance Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Issues in Strategy Implementation Action Stage of Strategic Management Mobilization of employees & managers Most difficult stage Interpersonal skills critical Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Performance Measurement Strategy Evaluation Internal Review External Review Performance Measurement Corrective Action Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Components of Strategy Culture and stakeholder expectations Resources and strategic capabilities The environment Context: Strategic Analysis Identifying strategic options Planning and allocating resources Content: Strategic Choice Process: Strategy Implementation Evaluating options Firm structure and design Selecting strategy Managing strategic change

Levels of Strategy Functional Business Corporate Global 15

Hierarchy of Strategy Functional Strategy Business (Division Level) Corporate Manufacturing Finance Marketing Research and Development Human Resources Strategic Unit Headquarters

Vision and Mission Statements Vision Statement – What do we want to become? Mission Statement – What is our business? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Vision It is description of something in future An organisational charter of core values and principles. A puller into the future.

Mission The purpose or reason for the corporation’s existence. It tells who the company is? what they do? what they’d like to become?

Objectives The end results of planned activity. They state WHAT is to be accomplished by WHEN. They should be quantified, if possible. Should be specific, measurable and obtainable.

Strategies A strategy is a comprehensive master plan stating HOW the corporation will achieve its mission and objectives. There are three types: Corporate - a corporation’s overall direction and the management of its businesses. Business - emphasizes improving the competitive position of a corporation’s products or services in a specific industry or market segment. Functional - concerned with developing a distinctive competence to provide a company or business unit with a competitive advantage.

Broad guidelines for making decisions. Policies Broad guidelines for making decisions. E.g. - 3M’s policy requiring researchers to spend 15% of their time working on something other than their primary project.

Strategy Implementation The process of putting strategies and policies into action through the development of: Programs - statements of activities or steps needed to accomplish a single-use plan. Budgets - statements of a corporation’s programs in dollar terms. Procedures - systems of sequential steps or techniques that describe in detail how to perform particular tasks or jobs.

Evaluation and Control The process of monitoring corporate activities and performance results so that actual performance can be compared with desired performance.

Long-term means more than one year Long-Term Objectives Specific results that an organization seeks to achieve in pursuing its basic mission Long-term means more than one year Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Long-Term Objectives Essential for ensuring the firm’s success Provide direction Aid in evaluation Create synergy Reveal priorities Focus coordination Provide basis for planning, organizing, motivating, and controlling Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Strategies Means by which long-term objectives are achieved Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Strategies Examples Geographic expansion Diversification Acquisition Product development Market penetration Retrenchment Divestiture Liquidation Joint venture Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Annual Objectives Short-term milestones that firms must achieve to reach long-term objectives Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Policies Means by which annual objectives will be achieved Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Strategic Management Communication is a key to successful strategic management Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Effective Strategic Planning is: A people process more than a paper process A learning process Words supported by numbers Simple and nonroutine Varying assignments, team membership, meeting formats, and planning calendars Challenging assumptions underlying corporate strategy Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Effective Strategic Planning continued Welcomes bad news Requires open-mindedness and a spirit of inquiry Is not a bureaucratic mechanism Is not ritualistic or stilted Is not too formal, predictable, or rigid Does not contain jargon or arcane language Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Effective Strategic Planning continued Is not a formal system for control Does not disregard qualitative information Is not controlled by “technicians” Does not pursue too many strategies at once Continually strengthens the “good ethics is good business” policy Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Comparing Business and Military Strategy Strategic planning started in the military Similarity Both business and military organizations must adapt to change and constantly improve Difference Business strategy assumes competition Military strategy assumes conflict Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Adapting to Change Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Key Terms in Strategic Management Competitive advantage Strategists Vision and mission statements External opportunities and threats Internal strengths and weaknesses Long-term objectives Strategies Annual objectives Policies Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

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