1. Strategic Management
1. Why is strategic management important? 2. What is strategic management? 3. Who is involved with strategic management?
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2. Learning Outcome Explain Why Strategic Management Is Important
Everyone in the organization has a role in strategic management
It enables understanding how strategic decisions are made
Establishes an understanding of how work is valued and rewarded
It makes a difference in how well an organization performs
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3. Learning Outcome
Studies show relationship between effective organizations and their use of strategic management
Impact on bottom line
Adapting to changing situations, internal & external
Coping with uncertainties
Effectively guides organizational decision makers
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4. Studies on Relationship Between Strategic Management & Performance
Studies of decision making process suggest the way strategy is developed can have an affect on performance
Decision makers that collected information and used analytical techniques make more effective strategic decisions than those that do not
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5. Studies on Relationship Between Strategic Management & Performance
Another study found organizations that used several approaches to develop strategy outperform those that use a single approach
Structured, systematic approach can positively affect organizational performance
Strategic management helps achieve the organization’s goals by
Coordinating and focusing the various divisions, departments, and work activities
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6. Corporate Reputations
A good corporate reputation is critical and surveys support its importance and influence
On financial performance
Executing strategy
Transparency and disclosure of information
Strong corporate governance
Check Companies with the Best Reputations
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7. Learning Outcome Explain what strategic management is
Explain who’s involved with strategic management
Discuss the three important factors impacting strategic management today
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8. Explain What Strategic Management Is
No matter what the business or industry, strategic management is involved in such varied areas as
Market expansion
Product development
Decision making
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9. The Basics of Strategy and Strategic Management
Definition of Strategy
Strategy is a series of goal-directed plans and actions that align an organization’s skills and resources with the opportunities and threats in its environment
Definition of Strategic Management
This is a process for situation analysis and strategy formulation, implementation, and evaluation
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10. The Definition of Strategy
Involves an organization’s goals
Engages goal directed action
Includes a series of related decisions and actions throughout the various levels and divisions of an organization
Takes into account organizational internal strengths (resources and capabilities) and external opportunities and threats
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11. The Definition of Strategic Management
Strategic management involves those decisions and actions of organizational members that includes:
Analysis of the current situation
Development of appropriate strategies
Putting the strategies into action
Evaluating, modifying, changing strategies as needed
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12. Strategic Management in Action
IDEO is a design firm known for a range of innovative product designs that have won global design awards
The strategic management challenge for IDEO is keeping the ideas flowing
How can companies in today’s globally competitive environment generate creative ideas?
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13. The Basic Activities of Strategic Management
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14. The Four Characteristics of Strategic Management
Interdisciplinary
It focuses on the whole organization, rather than any functional part
External Focus – interaction of organization with external environment
Economy
Competitors
Market demographics
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15. The Four Characteristics of Strategic Management – cont’d
Internal Focus
Understands the resources and capabilities the organization does or does not have
Future Direction of the Organization, includes
Decisions
Planning
Shifts or changes in products or markets
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16. Strategic Management in Action
IHOP
What strategic changes did the new IHOP CEO employ to turnaround a struggling company?
What challenges did it face with the acquisition of Applebee's in 2007?
What was different? What did Applebee's possess that could be used to build on?
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17. The Strategic Management Process
A process is a series of interrelated and continuous steps that lead to an outcome
The Strategic Management Process employs its four characteristics to create a set of strategies used to conduct its business
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19. Situation Analysis
Situation analysis is required before deciding upon a strategic direction or response and it involves scanning and evaluating
The current organizational context
The external environment
The organizational environment
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20. Strategy Formulation
Strategy formulation is developing and choosing appropriate strategies, as guided by the situation analysis, and includes three main types of strategies
Functional Strategies (also called operational strategies)
Competitive Strategies (also called business strategies)
Corporate Strategies (these are guiding strategies by which all efforts are aligned)
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21. Functional Strategies
Functional strategies or operational strategies are goal oriented plans and actions of the functional areas of an organization, they include:
Production-Operations
Marketing
Research & Development
Human Resources
Financial-Accounting
Information Technology & Support
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22. Competitive Strategies
Competitive strategies or business strategies are goal directed plans and actions concerned with how an organization competes in a specific business or industry
Looks at all aspects of strategies and actions
Seeks to determine what the company currently can do and what it wants to do
Focus is on how it might more effectively compete
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23. Corporate Strategy
Corporate strategies are goal directed plans and actions that are concerned with what business or businesses a firm wants to be in and what to do with those businesses; for example
FedEx’s decision to acquire Kinko's
PepsiCo’s decision to spin off their fast-food division
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24. Strategy Implementation
It is not enough to formulate great strategies, they must be implemented
Strategy implementation is putting the various stages of strategies into action
How a strategy is implemented must be considered
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25. Strategy Evaluation
Strategy evaluation involves evaluating both the outcomes of the strategies and how they have been implemented
Determine if they produced the expected strategic goals
Helps with the evaluation of results and, if necessary, any modification of strategies
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26. Strategic Management Process in Action
The Strategic Management Process is a continual cycle
It is not a sequential process
It allows for analysis of the current situation
Enables adjustments to current strategies as necessary, to pursue and achieve goals
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27. Making It Last Characteristics of companies that endure
Continual focus on value and profitability
Keeping strategy simple by understanding key priorities
Committing to effective communication
Creating a performance oriented culture
Sharing decision making
Obtaining and filtering information
Rapidly adapting to change
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28. Looking at Strategic Management’s Past
Strategy’s military roots
Origin of the word is Greek referring to military commander
Historical references to the design of plans and actions to gain an edge on the enemy
The concept involves analyzing the situation and effecting an appropriate response
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29. Principles of War
Nine principles taught by leading US military academies that can be used in business to develop strategies
Objective: every operation should be directed to a clearly defined, decisive, and attainable objective
Offensive: seize, retain, and exploit the initiative
Unity of command: forces must be under one commander with full authority and responsibility
Mass: concentrate combat power at the decisive place and time
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30. Principles of War – cont’d
Economy of force: allocate on the essential minimum of forces to secondary efforts
Maneuver: place the enemy in a position of disadvantage through the flexible application of combat power
Surprise: strike at the enemy at a time or place that is unexpected
Security: never allow an enemy to acquire an unexpected advantage
Simplicity: need clear plans and concise orders
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31. Academic Origins of Strategic Management
Strategic management is a relatively young field. The theoretical foundation is from economics and organization studies; with emphasis on
Rationality
Predictability
Similarity
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32. Academic Origins of Strategic Management – cont’d
Key writers and their areas of interest
Frederick Taylor: Scientific Management
Max Weber: Bureaucratic organizations
Chester Barnard: Administrative functions & the organization as open systems
Focus by academics on
Role of managers
Efficiency and effectiveness
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33. Strategic Planning and Strategic Management Emerge
During the 1960s, organization theorists searched for explanations of organizational differences in functioning and performance
Attempts made to determine if there was one best way to manage in all situations
Contingency approaches emerged when it was determined that each organization was different and the best way to manage depended on the situation
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34. Strategic Planning and Strategic Management Emerge – cont’d
Three classic strategy textbooks established many of basic precepts of strategic management and distinguishing it as a separate field of study
During 1970s-1980s, dichotomous view of strategy emerged
Process focus = “how” strategy is formed
Content focus = the “what” of strategy decisions
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35. Learning Review: Learning Outcome 1.2
Define strategy and strategic management
Describe the strategic management process
Describe the three types of organizational strategies
Explain the historical evolution of strategic management
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36. Learning Outcome 1.3 Explain Who’s Involved with Strategic Management
The Board of Directors
The Role of Top Management
Other Managers and Organizational Employees
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37. Explain Who’s Involved with Strategic Management
Strategic management is more than the responsibility of an organization’s top managers
People at all levels of the organization play a role in strategy
Developing it
Implementing it
Changing it
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38. The Board of Directors
Usually an elected group that represents a company’s shareholders
They have a legal obligation to represent and protect the interests of shareholders through corporate governance
In the past, board participation was viewed as approving strategies designed by management
With increasing shareholder activism, boards are more involved in the strategic process
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39. Typical Board Responsibilities
Review and approve strategic goals and plans
Review and approve organization’s financial standards and policies
Ensure the integrity of organization’s financial controls and reporting system
Approve an organizational philosophy
Monitor organizational performance and regularly review performance results
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40. Typical Board Responsibilities – cont’d
Select, and compensate top level managers
Develop management succession plans
Review and approve capital allocations and expenditures
Monitor relations with shareholders and other key stakeholders
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41. The Role of Top Management
Responsible for every decision and outcome, top management plays a most significant role in strategic management process
Top management includes C-Suite level officers, including
CEO, Chief Executive Officer
COO, Chief Operating Officer
CFO, Chief Finance Officer
CIO, Chief Information Officer
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42. The Role of Top Management – cont’d
Top management provides strategic leadership, which involves:
Determining organizational purpose
Exploiting and maintaining core competencies
Developing human capital
Creating and sustaining strong organizational culture
Emphasizing ethical decisions and practices
Establishing balanced controls
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43. Figure 1.4
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44. Other Managers and Organizational Employees
Managers and employees at all levels have strategic responsibilities that include:
Strategy implementation, putting strategies into action
Strategy evaluation, determining if the strategies are working
Adjust the strategies to achieve desired ends
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45. Learning Outcome 1.3
Explain the role of the board of directors in strategic management
Discuss how top managers can be effective strategic leaders
Describe the role of other managers and organizational employees
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46. Learning Outcome 1.4
Discuss the three important factors impacting strategic management today
The Global Economy and Globalization
Corporate Governance
Strategic Management in an E-Business World
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47. The Global Economy and Globalization
In past twenty-five years, globalization has become a leading focus of company strategies
Increasing number of companies have revenues coming from outside their country of origin
Global recession creates strategic challenges
Reduced consumer demand
Restricted access to capital
Pressures to reduce costs
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48. The Global Economy and Globalization – cont’d
Globalization has created a greater sense of openness
Benefits from global expansion are economic (profits, market opportunities) and social (political and cultural)
Open up trade
Break down geographic barriers
Creates economic interdependence
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49. The Global Economy and Globalization – cont’d
Problems with globalization
Economic interdependence means when one country’s economy falters, it can have a domino effect on others it does business with
Economic crises may result
Mechanisms to deal with economic crises
World Trade Organization
World Bank Group
International Monetary Fund
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50. Global Economy: Key Mechanisms
World Trade Organization (WTO)
Helps 153 member countries conduct business
World Bank Group
Cooperative of 185 member countries that provides financial and technical assistance, to promote economic development and poverty reduction
International Monetary Fund (IMF)
Loans and assistance to establish financial stability
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51. Globalization: Challenges
Beyond openness and interdependence
Cultural differences
Degree of acceptance of capitalism varies among countries, as it is viewed as “Americanization”
Misunderstandings and disagreements between countries born of resentment, distrust
Need for greater understanding and awareness by strategic decision makers
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52. Corporate Governance
Greater awareness of the value of corporate governance driven by the financial scandals of the past decade
Destroyed billions of dollars in shareholder value
Directors of boards failed to find or address organizational problems
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53. Corporate Governance – cont’d
Scandals have led to legislative reform
Government views business as unwilling or unable to regulate itself to protect investors
Laws and regulations created to protect investors by improving accuracy and reliability of corporate disclosures
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54. Corporate Governance – cont’d
What is corporate governance?
The way the a corporation is governed
The way the board uses organizational resources
The manner in which conflicts are resolved among multiple participants in the organization
The sum of how a corporation uses its resources to protect the interests of shareholders
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55. Corporate Governance – cont’d
Sarbanes-Oxley, a US law, was designed to protect investors by improving accuracy and reliability of corporate disclosures
The law mandates two areas of corporate governance reform
The role of the board of directors
The type and scope of financial reporting
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56. The Role of Boards of Directors
The original role of the board of directors was to ensure a group, independent from management, would look out for investors who were not involved in the daily operations of the corporation
In practice, the boards developed a “cozy” relationship with the CEO and management
It resulted in reciprocal “care taking”
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57. The Role of Boards of Directors – cont’d
Sarbanes-Oxley changed the relationship
Demanding board members of publicly traded companies be responsible for strategic and financial decisions
The Business Roundtable, an association of CEOs of leading companies outlined a set of governance principles for boards and top managers that are critical to the effective functioning of corporations and the integrity of public markets
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58. Corporate Governance: The Global Perspective
Corporate governance is a global issue
Governance Metrics International, a research and rating agency, using six broad categories of analysis to create their rating metric rates countries on their governance structures and procedures
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59. Corporate Governance: The Global Perspective – cont’d
GMI Index for analysis
Board accountability
Financial disclosure and internal controls
Executive compensation
Shareholder rights
Ownership base
Takeover provisions
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60. Corporate Governance: The Global Perspective – cont’d
GMI also looks at corporate behavior and social responsibility
Among the highest ratings went to Ireland, Canada, UK, Australia, USA
Among the lowest were Indonesia, Mexico, China, Japan
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61. Financial Reporting
Sarbanes-Oxley also called for more disclosure and transparency of financial information, creating specific requirements for businesses
Certification of the accuracy of financial statements by requiring senior managers to sign off on them
Mandated publicly traded firms establish an auditing of internal financial controls through independent auditors
These mandates have created compliance costs
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62. Guiding Principles of Corporate Governance
The primary duty of the board is to select a CEO and oversee the CEO and senior management in an effort to achieve a competent and ethical operation of the business
It is the responsibility of management to operate in an effective and ethical manner to produce shareholder value
It is the responsibility of management to produce in a timely manner financial statements that fairly represent the financial condition and results of corporate operations
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63. Guiding Principles of Corporate Governance – cont’d
4. It is the responsibility of the board to engage an independent accounting firm to audit the financial statements, issue an opinion that those statements are in accordance with Generally Accepted Accounting Principles, and oversee the corporation’s relationship with the outside auditor 5. It is the responsibility of the board to play a leadership role in shaping corporate governance 6. It is the responsibility of the board to adopt and oversee implementation of compensation policies for management and CEO performance
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64. Guiding Principles of Corporate Governance – cont’d
7. It is the responsibility of the board to respond appropriately to shareholder concerns 8. It is the responsibility of the corporation to deal with its employees, customers, suppliers, and other constituencies in a fair and equitable manner
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65. Strategic Management in an E-Business World
E-business is using information and communication technologies to support all the activities of a business
It includes e-commerce, which is the retailing side of e-business
An increasing number of businesses conduct e-commerce, some sell exclusively over the Internet
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66. E-Business Strategic Approaches
Strategic decision makers often choose from among three different strategic approaches to e-business
An e-business enhanced organization that maintains its traditional structure, while setting up e-commerce
Many large firms have evolved using this approach
These companies use information and communication technology to enhance business
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67. E-Business Strategic Approaches – cont’d
Another approach is an e-business enabled organization that uses information and communication technology to perform its traditional business functions better; but not sell through the internet
This technology enables the organization to do their work more efficiently and effectively
The effort often employs the means to more effectively interact with employees and customers
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68. E-Business Strategic Approaches – cont’d
The final strategic approach is when an organization is a total e-business
The focus is on completely transforming the way it does its work and sells its products
It is based entirely on the Internet
Examples of such companies include: Amazon, Google, Yahoo, and EBay
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69. Concluding Thought Strategic management is a business reality
No matter where in an organization a person works or what their particular job may be, they will be involved with and affected in some way by strategic management
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70. Learning Review: Learning Outcome 1.4
Discuss how the global economy and globalization affect strategic management
Explain the concept of corporate governance and how it impacts strategic management
Describe the three approaches to e-business
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71. Review of Learning Outcomes
Outcome 1.1: Explain why strategic management is important
Individually: you will be evaluated on and rewarded for doing your job well, which means understanding how and why strategic decisions are made
Organizationally: it can make a difference in how well an organization performs; it also helps with adapting to changing situations and coordination of various divisions, functions, and work activities
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72. Review of Learning Outcomes – cont’d
Outcome 1.2: Explain what strategic management is
Strategies: are an organization’s goal directed plans and actions that align its capabilities and resources with the opportunities and threats in its environment
Strategic management: is a process of analyzing the current situation; developing appropriate strategies; putting strategies into action; and evaluating , modifying, or changing strategies
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73. Review of Learning Outcomes – cont’d
Outcome 1.2: Explain what strategic management is – cont’d
Four characteristics: include interdisciplinary, external focus, internal focus, and future-oriented
Strategic management process: situation analysis, strategy formulation, strategy implementation, and strategy evaluation
Types of organizational strategies: function or operational, competitive or business, corporate or what to do with those businesses
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74. Review of Learning Outcomes – cont’d
Outcome 1.2: Explain what strategic management is – cont’d
Reality: process may not always follow the sequence, but activities are still completed
Background: military strategies and academic origins (economics and organizational theory)
Emergence of strategic planning and strategic management: 1960s, attempt to explain variances in performance; 1970s-1980s, focus on process and content
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75. Review of Learning Outcomes – cont’d
Outcome 1.3: Explain who is involved with strategic management
Assumption: all employees have a role
Three main groups: boards of directors (representing shareholders), strategic leadership (senior management work to create viable future), other managers and employees (responsible for strategy implementation and evaluation)
Six key dimensions of strategic leadership (exploit resources, create culture, and make decisions)
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76. Review of Learning Outcomes – cont’d
Outcome 1.4: Discuss the important factors impacting strategic management today
Global economy and globalization: provides economic and social benefits; challenges come from openness which makes countries vulnerable to political and cultural differences; as well as economic interdependence of trading nations
Challenges facing nations have been countered by the World Trade Organization, the World Bank, and the International Monetary Fund
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77. Review of Learning Outcomes – cont’d
Outcome 1.4: Discuss the important factors impacting strategic management today- cont’d
Challenges of cultural and political differences requires sensitivity to differences
Corporate governance: reform brought about by legislative action designed to protect investors and reform the role of boards and financial reporting
E-business (including e-commerce): these are businesses that are enhanced, enabled, or made totally e-business through the Internet
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78. Case Questions: Case 1 Making Magic Happen
What is the Disney Difference and how will it affect the company’s corporate, competitive, and functional strategies?
What challenges do you think Disney might face in doing business in Russia? How could Iger and his top management team best prepare for those challenges?
“The steward of the entire Disney brand.” What do you think it means that Iger views himself as this? Is this a part of being a leader? How might it affect the company’s strategy formulation/implementation?
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79. Case Questions: Case 1 Making Magic Happen – cont’d
4. How might Iger and his top management team use the strategic management process to “keep the magic coming” in the current economic climate?
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80. Case Questions: Case 2: MTV’s New Reality
Explain how strategic management and its process are illustrated in the case.
What are some performance measures that MTV’s strategic decision makers might use as they evaluate the results of their digital and global strategies?
Look for information on MTV’s website that helps describe its strategic approach and that of its various entertainment brands.
Evaluate Judy McGrath’s strategic leadership.
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81. Case Questions: Case 3 Making Over Avon
Explain how strategic management and its process are illustrated in this case.
What are some performance measures that Avon’s strategic decision makers might use to evaluate the results of the restructuring initiatives?
Andrea Jung is Avon’s first female CEO, which might be surprising considering its target customer is female. Do some research on the number of female CEOs and board members there are in US companies. Have these numbers changed over time? What conclusions might be drawn?
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82. Case Questions: Making Over Avon – cont’d
4. Go to Avon’s website and identify its vision and mission. How might these affect strategic decisions and actions? Check the companies senior management and select one manager other than Jung. Describe that person’s job responsibilities. Finally, select one of the firm’s brands and describe what strategies are being used for that brand.
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83. Case Questions: Case 4 Fighting Grime
Do you think strategic management has contributed to the Clorox company’s success? Why or why not?
Given the information included in the case, what step in the strategic management process do you think it excels? Explain your choice.
How might the CEO use strategic management to manage the company’s challenges?
Check the website and determine Clorox sales volume, number of employees, and current strategies.
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84. Case Questions: Case 5 In the Zone
In the brief description of AutoZone, how is strategic management illustrated?
What examples of functional strategy do you see? What factor/s do you think it might use in its competitive strategy?
AutoZone is committed to ethical business. Check their website for corporate governance and describe and evaluate what the company has done to promote the concept.
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85. Case Questions: Case 5 In the Zone – cont’d
4. What types of strategic challenges might the CEO and the company face as it pursues its strategic initiatives? How might strategic management help them deal with these challenges?
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86. Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall
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