1 Strategic Management in Action Overview of Strategic Management

W HAT I S S TRATEGIC M ANAGEMENT ? Strategy Planning vs. Strategic Management

T he B asics of S trategy & S trategic M anagement Definition of Strategy A series of goal-directed decisions and actions matching an organization's skills and resources with the opportunities and threats in its environment

T he B asics of S trategy & S trategic M anagement Strategy Involves: Organization’s goals Goal-directed action Related decisions and actions Internal strengths External opportunities and threats

T he B asics of S trategy & S trategic M anagement Definition of Strategic Management Decisions and actions where organizations Analyze current situation Develop appropriate strategies Put strategies into action Evaluate, modify, or change strategies

T he B asics of S trategy & S trategic M anagement Strategic Management entails: Basic managerial functions Planning Organizing Implementing Controlling

The Strategic Management Process Analyzing Current Situation Deciding on Strategies Putting Strategies in Action Evaluating and Modifying Strategies Situation Analysis Strategy Formulation Strategy Implementation Strategy Evaluation Strategic Management in Action Strategy Formulation Strategy Implementation Strategy Evaluation Change

The Strategic Management Process Situation Analysis Scanning and evaluating context External environment Organizational environment

The Strategic Management Process Strategy Formulation Three organizational levels Functional strategies Competitive strategies Corporate strategies

The Strategic Management Process Strategy Implementation Process of putting strategies into action Strategy Evaluation Process of evaluating: How the strategy has been implemented Outcomes of the strategy

The Strategic Management Process Continuing Process of Strategic Management in Action Ongoing and continuous cycle of Strategy formulation Strategy implementation Strategy evaluation

W HO’S I NVOLVED WITH S TRATEGIC M ANAGEMENT ? The Role of the Board of Directors Elected representatives of the company’s stockholders Legally obligated to represent and protect stockholder’s interest The Role of Top Management Responsible for every decision and action of every employee Providing effective leadership Other Strategic Managers and Organizational Employees Implement— put the strategies into action and monitor performance Evaluate—do the actual evaluations and take necessary actions Open book management

The Role of the Board of Directors Table 1-2 Typical Board Responsibilities Review and approve strategic goals and plans Review and approve organization's financial standards and policies Ensure integrity of organization's financial controls and reporting systems Approve an organizational philosophy Monitor organizational performance and regularly review performance results Select, evaluate, and compensate top-level managers Develop management succession plans Review and approve capital allocations and expenditures Monitor relations with shareholders and other key stakeholders Other responsibilities may be assigned depending on the unique culture and needs of the organization

The Role of Top Management Top Management CEOChief Executive Officer COOChief Operating Officer CFOChief Financial Officer CIOChief Information Officer

The Role of Top Management Effective Strategic Leadership Exploiting and Maintaining Core Competencies Developing Human Capital Creating and Sustaining Strong Organizational Culture Emphasizing Ethical Decisions and Practices Establishing Appropriately Balanced Controls Determining Organizational Purpose or Vision

M ANAGING S TRATEGICALLY & C OMPETITIVE A DVANTAGE Managing Strategically Make decisions and implement strategies that develop and maintain competitive advantage Recognize impact of dynamic external factors Capitalize on organizational resources and capabilities

M ANAGING S TRATEGICALLY & C OMPETITIVE A DVANTAGE Competitive Advantage (or competitive edge) Sets an organization apart Having something other competitors don't Doing something better than other organizations Doing something that others can't Necessary for long-term success and survival

M ANAGING S TRATEGICALLY & C OMPETITIVE A DVANTAGE Three Views of Competitive Advantage I/O ViewResource-Based ViewAdaptive View CompetitivePositioningPossessing uniqueTemporary Advantagein industryorganizational assets DeterminantsCharacteristicsType, amount,Ability to change and ofof industry;and nature ofradically surprise Profitabilityfirm’s positionfirm’s resourcescompetitors with within industrystrategic actions Focus of AnalysisExternalInternalExternal and internal MajorCompetitionResources—Continual, radical, and Concerncompetencies chaotic conditions StrategicChoosing DevelopingRapidly and repeatedly Choicesattractive unique resourcesdisrupting current situation industry and capabilitiesand surprising competitors Positioning in industry Characteristics of industry; firm’s position within industry External Competition Choosing attractive industry Possessing unique organizational assets Type, amount, and nature of firm’s resources Internal Resources— competencies Developing unique resources and capabilities Temporary Ability to change and radically surprise competitors with strategic actions External and internal Continual, radical, and chaotic conditions Rapidly and repeatedly disrupting current situation and surprising competitors

M ANAGING S TRATEGICALLY & C OMPETITIVE A DVANTAGE Industrial Organization (I/O) View Focus of the strategic analysis is external Structural forces Competitive environment Michael Porter

M ANAGING S TRATEGICALLY & C OMPETITIVE A DVANTAGE Resource-Based View (RBV) Exploiting resources develops and maintains advantage Difference in culture, experiences, assets, and capabilities Link internal assets and capabilities with environment Key assets (resources) give a firm sustainable advantage Financial, Physical, Human, Intangible, Structural-cultural Resource must be unique

M ANAGING S TRATEGICALLY & C OMPETITIVE A DVANTAGE Organizational Resources as Competitive Advantage Does it add value? Is it rare? Can firm exploit it? Is it easily imitated?

M ANAGING S TRATEGICALLY & C OMPETITIVE A DVANTAGE Adaptive View Competitive advantage is only temporary Changes that characterize environment Continual Radical Revolutionary Successful organizations must be adept at Rapid and repeated disruptions of current situation Radical surprises keep competitors off balance

Information revolution Technological advances and breakthroughs Globalization R EALITIES OF THE N EW B USINESS E NVIRONMENT Drivers of the New Business Environment Implications Continual turbulence and change Reduced need for physical assets Vanishing distance Compressed time Critical Success Factors Ability to embrace change Creativity and innovation capabilities Being a world-class organization Drivers of the New Business Environment

Drivers of the New Business Environment The Information Revolution Information readily available Information as the essential resource of production Technological Advances and Breakthroughs Perform tasks with equipment, materials, knowledge, and experience Four major technological trends

Drivers of the New Business Environment Increasing rate of change and diffusion Increasing commercialization of innovations Increasing dependence on knowledge intensity Advent of increasing returns Technological Innovation

Drivers of the New Business Environment Globalization Specific ways global factors impact Global marketplace Global competitors Globalization Solves customer needs Segments markets on a global basis

Implications of These Driving Forces Continual Turbulence and Change Change Any alteration in external environmental factors or internal organizational arrangements Organizational change Any alteration in what an organization does and how it does it

Implications of These Driving Forces Reduced Need for Physical Assets Traditionally, massing physical assets led to power Today, physical impedes flexibility, value in intangible YesterdayToday PhysicalNonphysical Manufacturing facilities Office buildings Equipment Inventory Customer databases Online ordering systems Process innovation Employee knowledge sharing

Implications of These Driving Forces Vanishing Distance Boundaries don’t determine customers and competitors Compressed Time & interactive Web sites instantly deliver info Instant interactivity creates dynamic environment

Critical Success Factors Ability to Embrace Change Change agents Creativity and Innovation Capabilities “Create and innovate or lose!” Creativity—a unique ability Innovative organization channels creativity

Critical Success Factors World-Class Organization Continual Learning and Improvement Flexible Organization Structure Creative Human Resource Management Egalitarian Climate Significant Technological Support Strong Customer Focus

Critical Success Factors Organization Governments Customers Social Action Groups Employees Communities Suppliers Trade Associations Political Action Groups Shareholders