Chapter 1 The Nature of Strategic Management

Learning Objectives Explain the concept of strategic management Describe how strategic decisions differ from other decisions that managers make Describe the comprehensive model of strategic decision making Appreciate the importance of strategic management process

Strategic Management – Defined Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its goal and objectives.

Strategic Management Critical Task Formulate the company’s mission, including broad statements about its philosophy, and goals Conduct an analysis that reflects the company’s internal conditions and capabilities Assess the company’s external environment, including both the competitive and the general contextual factors Analyze the company’s options by matching its resources with the external environment

Identify the most desirable options by evaluating each option in light of the company's mission Select a set of long-term objectives and grand strategies that will achieve the most desirable options 7. Develop annual objective and short-term strategies that are compatible with the selected set of long-term objectives and grand strategies

8. Implement the strategic choices by means of budgeted resource allocations in which the matching of tasks, people, structures, technologies, and reward system is emphasized 9. Evaluate the success of the strategic process as an input for future decision making.

Expectations for the Course: You Will… Struggle with figuring out what to do Be prepared to participate in planning for your own firms Study real business situation

Why is strategic management important? Gives everyone a role Makes a difference in performance levels Provides systematic approach to uncertainties Coordinates and focuses employees

The Strategic Management Process Copyright © 2004 South-Western. All rights reserved.

Strategic Leadership and the Strategic Management Process Effective Strategic Leadership Shapes the Formulation of Strategic Intent Strategic Mission and Influence Successful Strategic Actions Formulation of Strategies Implementation of Strategies Yields Strategic Competitiveness Above-average Returns

Strategic Leadership Requires the managerial ability to: Anticipate and envision Maintain flexibility Empower others to create strategic change as necessary Strategic leadership is: Multi-functional work that involves working through others Consideration of the entire enterprise rather than just a sub-unit A managerial frame of reference

Strategic Leadership (cont’d) Effective strategic leaders: Manage the firm’s operations effectively Sustain a high performance over time Make better decisions than their competitors Make candid, courageous, pragmatic decisions Understand how their decisions affect the internal systems in use by the firm Solicit feedback from peers, superiors and employees about their decisions and visions

Managers as an Organizational Resource Managers often use their discretion when making strategic decisions and implementing strategies Factors affecting the amount of decision-making discretion include: External environmental sources Characteristics of the organization Characteristics of the manager

Factors Affecting Managerial Discretion External Environment External Environment Industry structure Rate of market growth Number and type of competitors Nature and degree of political/legal constraints Degree to which products can be differentiated Managerial Discretion

Factors Affecting Managerial Discretion External Environment Characteristics of the Organization Characteristics of the Organization Size Age Culture Availability of resources Patterns of interaction among employees Managerial Discretion

Factors Affecting Managerial Discretion External Environment Characteristics of the Organization Characteristics of the Manager Tolerance for ambiguity Commitment to the firm and its desired strategic outcomes Interpersonal skills Aspiration level Degree of self-confidence Managerial Discretion Characteristics of the Manager

Top Management Teams Composed of the key managers who are responsible for selecting and implementing the firm’s strategies A heterogeneous top management team: Has varied expertise and knowledge Can draw on multiple perspectives Will evaluate alternative strategies Builds consensus

Important Definitions Strategic Management Process The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns.

Steps in Strategic Management Process Step 1: Identifying the organization's current mission, objectives, and strategies Mission: the firm’s reason for being Who we are, What we do, and Where we are now Goals: the foundation for further planning Measurable performance targets Step 2: Conducting an external analysis The environmental scanning of specific and general environments Focuses on identifying opportunities and threats

Strategic Management Process (cont’d) Step 3: Conducting an internal analysis Assessing organizational resources, capabilities, activities and culture: Strengths (core competencies) create value for the customer and strengthen the competitive position of the firm. Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage. Steps 2 and 3 combined are called a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats)

Strategic Management Process (cont’d) Step 4: Formulating strategies Develop and evaluate strategic alternatives Select appropriate strategies for all levels in the organization that provide relative advantage over competitors Match organizational strengths to environmental opportunities Correct weaknesses and guard against threats

Strategic Management Process (cont’d) Step 5: Implementing strategies Implementation: effectively fitting organizational structure and activities to the environment Effective strategy implementation requires an organizational structure matched to its requirements. Step 6: Evaluating results How effective have strategies been? What adjustments, if any, are necessary?

Levels of strategy

Adapting to Change – Key Strategic Management Questions What kind of business should we become? Are we in the right fields Are there new competitors What strategies should we pursue? How are our customers changing?

What do we want to become? Key Terms Vision Statement – What do we want to become? Mission Statement – What is our business?

Opportunities & Threats (External) Key Terms Opportunities & Threats (External) Analysis of Trends: Economic Social Cultural Demographic/Environmental Political, Legal, Governmental Technological Competitors

Strengths & Weaknesses (Internal) Key Terms Strengths & Weaknesses (Internal) Typically located in functional areas of the firm Management Marketing Finance/Accounting Production/Operations Research & Development Computer Information Systems

Key Terms Strategies Means by which long-term objectives are achieved

Comprehensive strategic management model External Audit Chapter 3 Vision & Mission Chapter 2 Long-Term Objectives Chapter 5 Generate, Evaluate, Select Strategies Chapter 6 Implement Strategies: Mgmt Issues Chapter 7 Implement Strategies: Marketing, Fin/Acct, R&D, CIS Chapter 8 Measure & Evaluate Performance Chapter 9 Internal Audit Chapter 4