Strategic Management – Unit I R.Kannan
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.
1-3 FIGURE 1.1 The Main Components of the Strategic Planning Process
1-4 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. 1-5 External Analysis Identify strategic opportunities and threats in the operating environment. MacroenvironmentNational Immediate (Industry)
Copyright © 2001 Houghton Mifflin Company. All rights reserved. 1-6 Internal Analysis Identify strengths – Quality and quantity of resources available – Distinctive competencies Identify weaknesses – Inadequate resources – Managerial and organizational deficiencies
1-7 Strengths and Weaknesses Opportunities and Threats (SWOT Analysis) Strategic Choice Business Functional Global Corporate SWOT and Strategic Choice
1-8 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.
1-9 Functional-Level Strategies Focus is on improving the effectiveness of operations within a company. – Manufacturing – Marketing – Materials management – Research and development – Human resources
1-10 Global-Level Strategies Multidomestic International Global Transnational
Copyright © 2001 Houghton Mifflin Company. All rights reserved Corporate-Level Strategies Vertical integration Diversification Strategic alliances Acquisitions New ventures Business portfolio restructuring
Copyright © 2001 Houghton Mifflin Company. All rights reserved 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 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 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 Strategic Managers for All Levels FIGURE 1.2
Copyright © 2001 Houghton Mifflin Company. All rights reserved 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 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 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 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 Improving Strategic Decision Making Cognitive biases systematically influence the rationality of decision makers. FIGURE 1.5
Copyright © 2001 Houghton Mifflin Company. All rights reserved 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 FIGURE 2.1 Stakeholders and the Enterprise Contributions Inducements
Copyright © 2001 Houghton Mifflin Company. All rights reserved Stakeholder Impact Analysis 1.Identify stakeholders 2.Identify stakeholders’ interests and concerns 3.Identify resulting claims stakeholders are likely to make 4.Identify most important stakeholders (from the organization's perspective) 5.Identify the resulting strategic challenges
Copyright © 2001 Houghton Mifflin Company. All rights reserved Mission Statement A formal commitment to stakeholders that the firm’s strategy incorporates and recognizes their claims on the organization. Mission statement elements: – A declaration of the overall vision, or mission. – A summation of managerial philosophical values. – An articulation of key organizational goals.
Copyright © 2001 Houghton Mifflin Company. All rights reserved Vision, or Mission A statement of purpose (strategic intent) committing the organization to ambitious overarching (stretch) goals. – Provides a sense of direction and purpose. – Drives strategic decision making and resource allocations. – Forces the seeking of significant performance improvements to attain goals.
Copyright © 2001 Houghton Mifflin Company. All rights reserved Customer Orientation and Business Definition Abell’s Framework for Defining the Business – Consumer-oriented versus Product-oriented business definition FIGURE 2.2 Source: Derek F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, N.J.: Prentice-Hall, 1980), p. 17.
Copyright © 2001 Houghton Mifflin Company. All rights reserved Goals Good goal characteristics: – Precise and measurable – Address important issues – Challenging but realistic – Time period specified The overriding organizational goal: – Maximizing shareholder returns. Firms need both short- and long-term goals.
2-28 The Corporate Governance Problem On-the-job consumption – Elaborate and expensive perks for top management. Excessive pay not linked to performance – Down markets and upward spirals of executive pay. Empire building – Buying additional businesses that increase the size of the company without increasing shareholder wealth.
Copyright © 2001 Houghton Mifflin Company. All rights reserved Corporate Governance Mechanisms Board of directors Stock-based compensation Corporate takeovers – Takeover constraints – Corporate raiders – Greenmail Leveraged buyouts – Managers offer to exchange equity for debt in a leveraged buyout (purchase of the company).
Copyright © 2001 Houghton Mifflin Company. All rights reserved Strategy and Ethics The purpose of business ethics – To provide the tools for dealing with moral complexity in strategic decisions. Shaping the organization’s ethical climate – Emphasizing the importance of strong ethical values by top management. – Including the values in the organization’s mission statement.
Copyright © 2001 Houghton Mifflin Company. All rights reserved Thinking Through Ethical Problems A model of ethical decision making FIGURE 2.5
Copyright © 2001 Houghton Mifflin Company. All rights reserved Corporate Social Responsibility The sense of obligation to include social criteria in strategic decision making. Pro: – It is the right way for a firm to behave. – Economic actions have social consequences. – Social behavior affects the firm’s market value. Con: – A firm’s primary obligation is to maximize profits for its stakeholders in open competition.