Chapter 1 The Strategic Management Process

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.

Strategic Planning Rational planning by top management? Basic Strategic Planning Model 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 4

The Main Components of the Strategic Planning Process FIGURE 1.1

Mission and Goals Mission Major goals Secondary goals 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.

External Analysis Identify strategic opportunities and threats in the operating environment. Immediate (Industry) Macroenvironment National

Internal Analysis Identify strengths Identify weaknesses Quality and quantity of resources available Distinctive competencies Identify weaknesses Inadequate resources Managerial and organizational deficiencies

SWOT and Strategic Choice Strengths and Weaknesses Opportunities and Threats (SWOT Analysis) Strategic Choice Business Functional Global Corporate

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.

Functional-Level Strategies Focus is on improving the effectiveness of operations within a company. Manufacturing Marketing Materials management Research and development Human resources

Global-Level Strategies Multidomestic International Global Transnational

Corporate-Level Strategies Vertical integration Diversification Strategic alliances Acquisitions New ventures Business portfolio restructuring

Strategy Implementation Structure 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 Controls Strategy

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

Strategic Managers General managers Operations managers Responsible for the overall (strategic) performance and health of the total organization. Operations managers Responsible for specific business functions or operations. 26

Strategic Managers for All Levels FIGURE 1.2

Strategic Leadership Vision, eloquence, and consistency Commitment to the vision Being well informed Willingness to delegate and empower Astute use of power Emotional intelligence 28

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. 29

Intended and Emergent Strategies FIGURE 1.3 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.

The Strategic Management Process for Intended and Emergent Strategies FIGURE 1.4

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 33

Improving Strategic Decision Making Cognitive biases systematically influence the rationality of decision makers. FIGURE 1.5

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. 34

Techniques for Improving Decision Making Two decision- making processes that counteract cognitive biases and groupthink. FIGURE 1.6